I have a rental property, and I spent about $25000 to repair and remodel it, can I deduct this expense from my rental income, and how?

[DianeW777]

The house purchased for rental real estate in 2020 should be entered as a new asset.  Select Assets then add another or add this as your first asset.  Be prepared with the land value.  Enter that amount when indicated, then TurboTax will calculate the depreciation on the building portion only.  

If you are not sure of the cost portion for the land you can use the county tax assessments to determine the land vs building percentage, then use that percentage against the purchase price.

To enter your rental:

1. In TurboTax, search for rentals and select the Jump to link at the top of the search results.
2. Answer Yes to the question Did you have any rental or royalty income and expenses in 2020 for property you own?
3. Follow the on-screen instructions as you proceed through the rental and royalties section.
   • We'll ask you to enter general information about your rental (like description, address, and ownership percentage).
   • Eventually, you'll come to the Rental Summary screen, which is where you enter your rental income and expenses, assets and depreciation, and vehicle expenses.
4. When you enter your rental house as an asset be sure to select Residential Rental Property (see below), the follow the screen prompts to enter all the details.

[feiwenw66563]

Hi,

Your reply is very helpful. I have a rental property for a couple of years. In 2020, I have spent $35k to renovate the property and need to claim it as a depreciation. Please help me what answer I need to select. Thanks

On TT:

Let's see if you can claim these improvement as expense.

Do all these apply to you? Yes or No

Do you want to take this annual election? Yes or No

[feiwenw66563]

Hi  DianeC958,

I have the same case and made $35k the improvement for my rental property. How can I answer the question below on TT:

Let's see if you can claim these improvement as expense.

Do all apply to you? Yes or No

Do you want to take this annual election? Yes or No

Thanks

[ErnieS0]

@feiwenw66563 See the answer by awesome Tax Expert @Irene2805 about the annual election. You can choose the annual election if you'd rather deduct individual improvements costing $2,500 or less rather than depreciating them. So if you made multiple improvements totaling $35,000 but made some improvements costs $2,500 or less, you can deduct some improvements under the de minimis safe harbor election. For example, if you bought a door as part of your improvements.

See: Re: I have a rental property, and I spent about $2...

[raisongal]

Thank you for this.

And if you did a big renovation and some of the items are under $2500 and some are over, can you use the de minimis safe harbor election for some of the improvements and the depreciation for the others?

Also, if you do add all of the home improvement costs to your depreciation, how will this impact your taxes when you sell the house.

Finally, if for this tax year I lived in the house 40% of the time and rented it 60%, but next tax year I will live in it 100% of the time, how would adding improvements to my depreciation impact my taxes?  Would I need to recapture those deductions next year or any year I am not renting it out 50%?

Thank you again.

[Hparker825]

I’m in a rental property that has a massive backyard but it is all dirt and stickers. I want my kids to be able to use it but it would be very expensive to make it function. I want to ask the property owner who owns about 9 properties here if they will come to some kind of agreement and make it very appealing to them. Can the owner right off the expense if they are willing to invent in some landscaping so we can actually use the backyard? 

[GeorgeM777]

Yes, the owner of the property can expense the cost of what appears to be an improvement of the backyard.  There is a significant difference between a repair of property versus an improvement of a property.  Given the condition of the backyard you described, if the owner decides to make the backyard more suitable for your children, it would appear that such changes would fairly be characterized as improvements, and thus would need to be capitalized.  In other words, the owner would depreciate the cost of the improvements made to the backyard over a period of 15 years.

In connection with expensing the improvement costs to the backyard, the owner may also be able to take advantage of bonus depreciation.  Assuming the property qualifies, the owner may be able to elect bonus depreciation and expense the entire cost of the improvements in the year the money is spent. 

Below is a link to a TurboTax article which you may find helpful.  

Rental Depreciation and How Does it Differ from an Expense 

[rechd]

Thank you for your response.  However, I owned the property for the last 8 years.  I stopped renting it in June 2021, and remodel it specifically for the sale that happened in July 2021.  

It's being very frustrating to try to enter my actual expenses.

[DianeW777]

If the remodel occurred in 2021, then the expense for that can be entered with your selling expenses to achieve the correct gain (or loss). This will achieve the end result for your tax return that you need, which is reflecting the correct gain (or loss).

There is no reason to add the remodel as an asset because it occurred after it was no longer being rented and then the rental was sold.

The rental income and expenses would be entered as usual and the sale will handle the remodel as indicated producing your correct end results for both the rental and the sale. Based on the thread here I don't see your original question.

Please update here if you need further assistance.

@rechd

[stevenf]

Hi, my rental unit started 1/1/2021. However I purchased many appliances, carpeting, in 2020. That's what people do, they spend to improve so that it will rent! Each individual purchase was under 2500 but many of them, sometimes 20.00 only. Since these occurred in 2020 do I depreciate these? Or are they considered under "Property Improvements Made" a box is listed for entering a figure amount  "Remodeling".

 Is carpet or flooring, or entire new windows considered "remodeling"?  How about paint? I spent about 300 on paint in 2020.

Thank you, Steven F.

[DianeW777]

It depends. if your rental property was available for rent before 2021, then the appliances, and other items purchased in 2020, should be used on your 2020 tax return.

Example:  While a rental property was being prepared for rent, it is not yet available.  Once it became available for rent, whether or not it is rented on that date, and advertised as such this is the date placed in service for a rental activity use.

If the rental unit was available and placed in service on 1/1/2021, then you can use those expenses on your 2021 tax return. It's all about the date they were placed in service for use.  Appliances can be expensed under the DeMinimis Safe Harbor (cost of $2,500 or less) as Other Expenses. You also have the option to depreciate them, whichever you decide.  As far as expenses that are $20 as in your example, you can enter that under repairs or supplies.

Land must be separated out from the building.  The easiest way to figure out the land value is to use the property tax assessment from your local courthouse. Add the land and building together then divide the land by the total to arrive at the percentage that is considered land.  Multiply that by the cost basis of the entire property.

Capital improvements can be a separate asset or, if this is the first year, you can include those amounts with your original cost of the rental property and add one asset for the house. 

• flooring, windows, roof, remodel are examples of capital improvements

Paint is usually a repair unless it's part of a complete remodel. 

@stevenf

[stevenf]

Hi Dianne,

 I replaced all windows, new air conditioner, new shower surround, new flooring various years prior say 2015. Can I add all of these as a capital improvement? If so where and how on my 2021 return I am now struggling with.  Thanks.  Using Home and business for 15 years now.

[stevenf]

Hi Dianne,

One last question please, I am adding my rental "Property Assets" right now for tax return 2021. How many years can I go back? I have made improvements throughout the 20 year stay. Turbo Tax needs to present timelines on this critical subject. No direction at all concerning this, Thanks  StevenF.

[DianeW777]

Since you placed the property in service in 2021, you can add those capital improvements to the original cost basis or you can add all capital improvements together to create a second asset. It's actually easier for the future if you add them together and create one asset for the date placed in service.  Keep in mind it's the date placed in service and not the date the improvements were made that matters.

Any capital improvements in the future will be a separate asset and entered like a new asset using the same recovery period as the original building. (27.5 years for residential rental property).

One additional piece of information, if a property is converted from personal use to rental use, the amount for the house that can be used for depreciation is the actual cost (original plus all capital improvements over the years of ownership) or the fair market value (FMV) on the date placed in service, whichever is less.  In most cases the cost is actually the lower amount.

@stevenf

[stevenf]

So sorry , still confused. You mean ALL capital improvements ever done for 20 years?  Practically speaking the date placed in service and date improvements made are the same to me in every situation.  I had all new windows installed on 1/1/2005 for example. I had new flooring on 1/1/2010 for example. New air conditioner on 1/1/2009 for example, see what I mean? How far back can you go?

 Please try and answer these 2  questions with a yes or no. If in fact I can go back in time and total up all capital improvements ( which you will answer me this please!) would I then take that lump sum and enter it under "Any Property Improvements Made "---- Remodeling ______? Thank you very much for your expert replies but they are intense for my understanding, you say a lot , bit overloaded thanks! Stevenf