Residential Rental property - tools purchased for DIY improvements

[Raeka]

I am remodeling common areas of an apt. house which is fully rented, myself. (DIY) It required purchase of lot of tools & supplies. Do I list all the tools & supplies as improvements or list them  in repair section?  I am in the menu section under "Rental Real Estate".  There isn't a category under the tax program under Expenses for tools, just "equipment repairs" and other broad categories that don't apply to what I'm doing. (Remodeling a hallway & added a new room). Should I go to the menu button for "Deductions" instead? 

None of the tools alone are more than $1000 each. Tables saw was under $900.  But the plywood, etc., goes into the building and seems that should be part of improvements. (Also paid electrician to replace old wiring with new wiring)  The person who did my taxes last year did not list some of the 2019 tool items on depreciation schedule because they totaled less than $2500. He said that is OK if you make an election to do so. A stove for one of units was therefore also not included and some of my work supplies such as scaffolding, etc. was not put on depreciation schedule. What is best way to handle these work tools for this return?

[DavidD66]

I would list the tools on Line 19 of Schedule E, "Other expenses".  I agree with how the other items were handled.

[Raeka]

Thank you!

I'm new to the software. I just edited my question. I'm not sure if I should stay under the "Rental Real Estate" menu (which is part of the Income section) or move over to the Deductions menu. When I looked in forms, I did not see a Schedule E. I think I'm too early in my entries. I haven't listed any expenses yet or depreciation table.

[DavidD66]

To enter a Miscellaneous Expense for your rental property, On the Rental Property info page:

• scroll down and click on "Add expense or asset". 
• Scroll to the bottom, and check the box for "Miscellaneous expenses" and click on "Continue"
• Back on the rental property info page, click Start next to "Miscellaneous Expenses"
• Give a Description (e.g. hand tools) and the amount, and click Continue

You can enter it all as one item, or as two or more.

[Raeka]

Thanks again.

My version of program doesn't have that option at bottom of screen. I'll just enter it all as one total. Maybe later in program I will  see a way to sub categorize them.

(I have TurboTax Business)

[Topangamama]

We're in a similar situation in that we DIYed all of the improvements to our rental property while it was still our primary residence.  

#1)  Is there a way to deduct the cost of all the tools used in the construction even though purchased several years ago?  

#2) Over the years, we've bought windows, appliances, as well as tons of construction materials to be used in our reno (tile, drywall, wood, etc.).  Should these be consolidated into categories and depreciated with different schedules?  We only started renting the house in June 2019, but the improvements were years in the making.

[AmyC]

@Topangamama 

1. no.

2. no. All the money you spent improving the house will go into your cost basis. When you sell the house, that will all be included. Keep good records safe somewhere. Pictures, receipts, everything that can prove what you did.

[Topangamama]

Thank you.  Another contributor, Carl, mentioned the following in another thread:

"Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property."  So wouldn't this be allowed?

[AmyC]

Property improvements are indeed entered in assets and depreciation once it has been rented.

Property improvements do add value to the property regardless of when it was done.

I completely agree. 

No, you are not allowed to add and here is why.

Example:

• Bought the house for $100,000
• lived there and remodeled, spending $50,000 on tools, walls, whatever to improve the house
• moved out and rented the house.
• The house is now going to be depreciated on the lower of Fair Market Value or Cost basis.
• So, let's say the house is now worth $200,000, FMV. Your basis in the house is $150,000 for all the money you put in to improve and buy the house.
• You are depreciating the house based on $150,000. All the money is being accounted for. There is nothing left to write off.

@Topangamama

[Topangamama]

 Thank you for clarifying.  I'm in the process of amending my 2019 return and want to add the cost of improvements (around $40K) to the Cost Basis of the house.  When I get to the screen that asks how I would categorize this asset, would I choose "residential rental real estate" and then describe it on the next screen as "property improvements"?  What would I put for the date purchased if I'm consolidating multiple purchases acquired over 5 years?  

[ThomasM125]

You would enter the improvements in TurboTax as you describe. The date purchased for the improvements should be the date the work was completed.

[Topangamama]

On another thread Amy suggested I simply add the amount to the cost basis of the house (I'm amending the return anyway).  Is it necessary to have a separate entry for the improvements?

[DawnC]

You can add the cost of the improvements you made BEFORE you starting renting the property to the basis.   For improvements done after you started renting, they are added as rental assets and depreciated over time.   Before you rent the property, it is a personal asset and does not require depreciation.   Once it becomes available for rent, the property becomes business property which is depreciated.   @Topangamama

[Carl]

Assuming the tools were purchased for the primary purpose of renovating the property, you should be able to claim the cost of those tools as a lump sum amount in the "supplies" section, which is on the 2nd screen of the Rental Expenses section.

Property improvement costs are added to the cost basis of the property, and should "NOT" change the value of the land. (Unless it's a land improvement of course.)