Rental Property Changed to Residential In August, Renovations Completed and Payed Sept-Dec: Deduction Possible?

[SKjames]

Is it possible to deduct renovation costs for my primary residence? (I think improvements can be added to the basis but not sure how to do so in TT.)

More Details:

I own a home. I utilized it as a rental property for several years and then I moved back into the home on 1 August 2022, effectively converting it from a rental property to a primary residence on that date. I'm fairly familiar with how various expenses get prorated to cover the portion of the year during which the home was used as a rental property (Jan-Jul 2022). However, after I converted the home back to my primary residence, I had renovations completed between Sept and Dec and paid $36,000 during that period. (Some renovation work has continued into January and the final payment still hasn't been made.) Are these renovations able to be used as a deduction related to my home? (I'm sure it can't be deducted as a rental property expense but I'm wondering if it can be deducted somehow otherwise. I think improvements can be added to the basis but not sure how to do so in TT.)

[JulieS · Accepted solution]

No, in general home improvements are added to the basis of your home and are not currently deductible. 

There are two narrow exceptions.:

• Home improvements that are medically necessary, or needed to make a home accessible to a disabled family member. Click here for more information. 
• Home improvements that qualify for the Energy Efficient Home Improvement Credit or the Residential Clean Energy Property Credit. Click here for more information. 

[SKjames]

Thank you for your response.

In TT, what do I do to get the home improvements added to the basis of my home? What section/question does that information get input under?

[AnnetteB6 · Accepted solution]

Information about the basis of your home is not entered into TurboTax or your tax return unless you sold the home.  

You need to just keep the records of the cost of your renovations with your other important papers so that you will have it in the future when you sell the home.  That is when the basis becomes important and possibly reported on your tax return.

@SKjames 

[SKjames]

@AnnetteB6 , thank you for that very clear and helpful explanation. Very much appreciated.

[Carl]

Nothing concerning your property improvements are entered anywhere on your tax return until one of three things happens in your life.

1) You convert the property back to a rental (adjusting the cost basis to account for your property improvements and prior depreciation taken before)

2) You sell the property.

3) You die.

[SKjames]

@AnnetteB6 , @Carl 

Relatedly, while renting out the home for the better part of a decade, various repairs and improvements were made. Those were all handled as expenses as part of the process of calculating rental property income. But when I go to sell the house, can I still list/use those same capital improvements (not the repairs) to adjust the basis of my home even though the improvements were made while the property was being used as a rental?

...I would think I could since the capital improvements still benefit the total value of the home even after it converted back to non-rental property.

[Carl]

Anything that you already claimed as an expense, can not be used to increase the cost basis. Only capital improvements that you capitalized and depreciated as a rental asset, can add to the cost basis. Otherwise, you're double-dipping.