Rental Property Improved in 2021 but Sold in 2022

[blueh2obug]

I have a rental home.  I rented it out for 2021.  While it was a rental I made improvements to ready it for sale in 2021.  It did not sell until February 2022.  Do I have to input the improvements as expenses against the rental property in 2021 or can I input it as a deduction against the sale in 2022?  Thanks!

[DawnC]

Yes.  Enter them on this tax return, 2021, since the expenses were made and improvements were done in 2021.   You will report the sale on next year's return.   But for this return, enter your rental income and expenses, including depreciation for 2021 on this tax return.  

How do I handle capital improvements and depreciation for my rental?   Capital improvements that add to the value of your rental property, prolong its life, or adapt it to new uses must be depreciated over a period of time rather than deducted as a current-year expense. 

[blueh2obug]

Thanks for the response.  So I can’t deduct any repair or improvement expenses against the proceeds on the sale of my house in 2022?  

[blueh2obug]

Thanks for the response.  So I can’t deduct any repair or improvement expenses against the proceeds on the sale of my house in 2022?  

[Vanessa A]

It depends on what the improvements and repairs were.  If it was something major, then you could add to the cost basis of the house but you would depreciate the new asset over the assets useful life for 2021. So you would get a depreciation deduction this year and then deduct the rest of the cost next year.

So lets say you replaced the roof and it cost you $8,700 

The roof would be depreciated over 27.5 years so lets say you did it January 1, 2021.  For 2021, you would take a depreciation expense of $316.   So when you claim the sale on your 2022 return your expense that will go against the selling price of the house would be $8,384 (8,700-316)

Your gain on the sale would be your selling price minus your original cost minus depreciation

@blueh2obug

[blueh2obug]

Thank you for your reply.  This was very helpful.