Rental Property Improvement not put in service

[prairieguy]

We have a rental property that we are doing an improvement on, and have nearly $10,000 in architectural expenses in 2022. We plan to convert the property to our primary residence prior to the improvement starting.  Our tax advisor recommended we include these expenses as a capitalized costs to limit gains, but these costs should not expensed or put in service in our 2022 filing.  I can't find where to enter these expenses not put in service in turbo tax premier. 

[PattiF]

The architectural expenses that you paid for your former rental property will be added to the cost basis of what will be your personal residence. 

All of the capitalized costs will be added to the basis of your personal home and will reduce the gain when you sell the house that you are converting.

There is no place to enter this in TurboTax. Keep track of all of the improvements for your soon-to-be primary residence in your records. 

Please see this TurboTax Tax Tip about Home Improvements and Your Taxes.

[prairieguy]

Thank you for the response @PattiF .  The property is currently still being rented, so is not a "former" rental yet (to be converted to non-business in August 2023). It was my understanding that this could be and was advisable to be reported on my taxes this year, but denoted that the capitalized cost was not put into service.  From your response it appears I am just to keep these records separate. 

[RobertB4444]

If you enter in costs that are to be capitalized then they are assumed to be put into service.  So you can enter in the architectural costs as part of the rental and begin depreciating those costs for the remainder of the time that the property is a rental.  When you convert it to personal use what is left of the depreciable basis of the architectural costs will be added to the basis of the home when you sell it, as @PattiF says above.

@prairieguy 

[Carl]

Property improvements completed after the last renter moved out are not entered anywhere on your tax return. While they do add to the cost basis of the property, you can't/don't enter them since the improvement will never be placed into service as a rental asset. It's up to you to keep track of your cost basis outside of taxes, as that will come into play when one of three things happens in your future.

1. You convert the property back to rental.

2. You sell the property.

3. You die.