Refund of partial insurance premium after sale of rental property

[Benjamine]

Sold a rental property 3/7/25.  Tenant vacated 1/8/25.  Insurance company allowed the tenant occupied policy to remain in effect until sale.  Partial refund of $223 received 3/12/2025. 

Policy terms ran 6/3/24 to 6/3/25.  Since I fully deducted the annual premium of $927 on 2024 taxes

under the rental property, only 8 days of 2025 were deductible. 

1.  Do I report the $223 as an addition to income for 2025; if so, where would I report that? 

2.  Are the monthly premiums ($77 x 66 days) for Jan 1 - March 7, 2025 deductible as an expense of sale to be included in my adjusted basis?  

Appreciate any advice!  Thanks! 

[Benjamine]

Posted on Saturday and no responses so far.  Really could use the assistance as I rely on the community for help! 

Thanx

[MaryK4 · Accepted solution]

1. Yes you would need to report the refunded insurance premiums as Other or Miscellaneous income on your Schedule E.

To enter in TurboTax:

1. Go to Wages & Income (or Personal Income).
2. Scroll down to Rentals, Royalties, and Farm and select Start/Update next to Rental Properties and Royalties (Sch E).
3. Find the property you sold and click Edit.
4. On the Rental Property Summary screen, click Start/Update next to Rental Income.
5. On the Let's enter the income for Rental, select Cash, checks, and electronic payments
6. Enter in the 2025 Rental Income Box (add it if you already have income here).

2. You would not enter the premiums for the 66 days as an adjustment to basis.  Selling expenses that adjust your basis are usually things like commissions, title insurance for the buyer, legal fees for the closing, and transfer taxes.  The insurance would be a deductible expense which you could deduct while you were maintaining the property while awaiting the sale if it was available for rent. (See Vacant while listed for sale.)  

PLEASE NOTE: Because you deducted the entire premium in 2024, you would not enter it as an expense again in 2025.  

By reporting the $223 as income, you effectively bring your total net deduction for the life of that policy down to $704, which covers the period from June 2024 to March 2025. You don't need to list a separate expense for the 66 days in 2025 because those dollars were already part of the $927 deduction you took in 2024.

[Benjamine]

Thank you so much for your detailed explanation - I'll add to "rental income".  I  used your link to again reread Vacant Property:

Vacant while listed for sale.

If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. (emphasis added)  If the property isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses.

I understand that the insurance expenses is not deductible as a rental expense.  However, I did have to pay for electricity, water, propane,  etc., while repairing and cleaning the property while it was Vacant While Listed for Sale from 1/9/25 until closing.   Aren't the utilities and supplies (replace broken deadbolt, cleaning supplies, etc., part of "...managing, conserving, or maintaining ... "? 

I've reviewed some other posts and although my situation is not similar in many respects - I could not have made repairs without utilities 

 https://ttlc.intuit.com/community/user/viewprofilepage/user-id/9621  @RobertB4444  and @Carl 

Any clarification would be helpful.  Many thanks!  

[AmyC]

If your home was held out for rent, claim all those normal expenses for that period. This includes utilities,  repairs, insurance, etc. 

What @MaryK4  said above is: Do not to add the insurance refund to the basis of the house. See Topic no. 703, Basis of assets

She only wants you to add the portion of the insurance as income on the rental for when the house was sold or not held out for rent. Follow her steps to add the refunded portion of the insurance paid for the disallowed time.

[Benjamine]

Thanks - again, I understand the answer as to the insurance premium.  

But, I still don't have any opinions on my other question I asked above:

However, I did have to pay for electricity, water, propane,  etc., while repairing and cleaning the property while it was Vacant While Listed for Sale from 1/9/25 until closing.   Aren't the utilities and supplies (replace broken deadbolt, cleaning supplies, etc., part of "...managing, conserving, or maintaining ... "?  In other words, the repairs completed by our contractor would NOT have been possible without electricity, water, and heat.  Also, we did work ourselves that also required utilities be operational to complete those repairs. 

In this scenario, would those costs be considered Expenses of Sale? 

First time dealing with a sale of rental property - trying my best to figure it out!  Really appreciate any guidance. 

[AmyC · Accepted solution]

They can be, it depends. If the house is an investment asset, it goes into the selling expenses. If it is a rental property, it is listed on the sch E by line item. Either way, you get the full deduction.

In your case, I would add it in with the expenses to sell the property to eliminate any future gray area.

Whatever you do, put notes in your tax file because 5 years from now, it will be a lot fuzzier.

[Benjamine]

Many many thanks AmyC for the answer and great advice to make notes!