Rental Property

[laddielg]

We owned a rental property that we sold in June 2024. The property was rented only in January 2024. From February 2024 until June 2024 we made repairs in preparation for sale of the property, but did not attempt to re-rent the unit during that time. All of the repairs made were "fix-up" repairs like painting, fixing leaking faucets/fixtures, repairing minor damage to the outside of the unit.

If I understand correctly, repair expenses incurred up to the end of January (when the property was rented) can be used to reduce the rental income received in 2024.  However, repairs made in February through June (when the property was not available to be rented while being prepared for sale) can be added to the basis of the property - thereby reducing the capital gains due on the proceeds of the June sale. Is that correct?

How about non-repair expenses incurred from February to June 2024 - expenses like HOA fees paid, or home appliance insurance costs paid. Can these be used to increase the basis of the property sold? 

[DianeW777]

Let's break this down. All information assumes that the property was never rented before January, 2024.

Repairs can be deducted for the amount spent while it was being rented, and when it was considered as 'available' for rent, 

Any expenses that are not capital improvements and simply maintenance are not allowed to be used or deducted during the period where the property was being prepared for sale and not available for rent.  

• Examples would be utilities, insurance, minor damage repair or painting.  
• Any item such as replacing faucets or fixtures, damages repaired on the outside of the rental could be considered capital improvements and added to the cost basis. Think of this as 'structural components'.

If the property was never rented before 2024, you cannot depreciate the property because any assets placed in service and removed from service in the same tax year are disqualified.

As far as the rental period, enter the rental income, as well as the necessary expenses in the Rents, Royalties and Farm Rental section,

• How do I enter my rental income and expenses?
• Do not enter any assets (see the rule above).

Enter the sale as an investment sale due to the limited nature of a rental property activity.  

To enter your sale in TurboTax, follow these steps. Click this link for more information. Where do I enter Investment Sales?

1. Open or continue your return.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open.
   • TurboTax Desktop: Search for investment sales and then select the Jump to link. 
     • Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other
3. Answer Yes to the question Did you sell any of these investments in 2024? (or Okay! to Time to kickoff your investments!).
   • If you land on  the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.