Rental Property repairs/Improvements and selling the home

[Asucena2024]

Hello, 

I have a rental property which has been in place as a rental for many years.  After the last tenant moved out, there were significant repairs that needed to be made to the home, totaling over approx. $40K.  Repairs included things like adding an AC unit, roof repairs, kitchen repairs, new carpets etc.  I decided to put it up for sale at the end of the year in November 2023.  It did not sell in 2023 and as of 3/2024, it is still for sale.  

How do I claim the repairs/improvements to the house for my 2023 taxes?  What about in 2024 when the house finally sells?  Should I list some of the improvements as assets to the house, and if so how do I account for that in the following year when the house is sold?

Thanks in advance for your time. 

[PatriciaV]

If the property was not listed as available to rent after you completed the repairs, the entire cost would be added to your basis in the property when you sell it. From the IRS' perspective, the property ceased to be a rental property when the tenant moved out.

The repair expenses are not separately reportable for tax purposes. Nor can you take depreciation after the date the renter moved out. But you will receive a benefit when you sell the property.

However, if you listed the property as available to rent after the repairs were completed, even if you didn't find a renter, the entire cost for repairs or improvements increases the basis of the property and should be entered as a separate Rental Asset (improvements). You may claim depreciation up to the date you listed the property for sale.

For more information, see:

• IRS - Vacant Property under Types of Expenses (IRS Pub 527)
• How do I handle capital improvements and depreciation for my rental?

[Carl]

Of all the things you listed, not a single one of them is a repair. They are all property improvements that get added to the cost basis of the property. Because you did not even attempt to rent it out after that last renter vacated, there's no need to enter these property improvements in the Assets/Depreciation section of your SCH E. Just manually add them to your cost basis of the structure and report the sale in the "Sale of Business Property" section.
Since you need to work through the Assets/Depreciation section anyway in order to get the total depreciation already taken on all assets, you should work through each asset and show it was converted to personal use at least 1 day after the last renter moved out. This will stop depreciation on that date, so you can add up prior year's depreciation and current year's (2023) depreciation to get the correct amount of depreciation taken, for recapture.

[Asucena2024]

ok thank you.  This makes sense. I will make those changes. 

[lthomas836]

Hello @PatriciaV and/or @Carl ,

To confirm, as an example, my renters moved out April 15, 2024.  I then in paid $15,000 in new carpeting, completely repainted, new countertops, etc.  I never put it back up for rent, and it has been for sale since.  As of February 1, 2025 it still has not sold.  Are you saying I hold on to these expenses until my 2025 tax season and include it with any capital gains?  Or do I put it on the 2024 returns?  It was no longer a rental property therefore I would not want to take depreciation on it.  Thank you in advance.

[PatriciaV]

If the property is not listed as a rental or is listed as available for sale, it is considered a "second home." As such, the expenses you incurred are added to your basis in the property (not expensed or depreciated). The increased basis will offset a portion of your gain when you sell the property. Report the sale transaction in the year of the sale.

@lthomas836