Sale of rental condo mid year after repairs and expenses

[10276]

I have used TurboTax Premier mostly online platform to report my condo rental incomes and expenses for the last 14 years.

In January 1st 2022, I stopped renting it for repair due to heavy damages done by the renter until I sold it in May 2022. During that period I have not stayed in it and got zero rental income but still paying taxes, HOA, utilities and repairs expenses.

On the cost basis calculations in selling this condo in May 2022:

1. Can I include all the expenses (utilities, HOA, taxes) from January through May 2022?

2. Can I include all the repair expenses in 2022?

3. Do I have to include the recaptured depreciation from January through May 2022 also?

Thanks for your reply to each bullet item above

[Carl]

If your intent was not to rent the property back out after the repairs were done, then you need to convert it to personal use with an effective date of one day after the last renter moved out, or when you decided you were not going to attempt to rent it out again - whichever is last.

From the looks of it, you decided on Jan 1st not to rent, but to sell. So you would convert it to personal use with a conversion date of Jan 1, 2022. On that date all depreciation stops.  Then, the only deductible expenses are property taxes and mortgage interest as a SCH A itemized deduction. That's it.

Repairs are not deductible if incurred after the conversion date. But understand there is a difference between repairs and property improvements. So what are you calling "repairs"?  How much money we talking about here?

Property improvements add to the cost basis of the property. Those improvements incurred after the last renter moved out were never placed in service before you sold it. THerefore, they would "not" be entered anywhere on the SCH E.

Basically, after converting the property to personal use to stop depreciation (so you can pull definitive amount of depreciation taken) you'd report the sale in the Sale of Business Property section where you could include property improvements in the cost basis, and still be able to recapture all depreciation taken so that it's taxed correctly.

Now I'm not sure, but I think things like monthly HOA fees incurred after converting it to personal use and deciding to sell it, could be included in your sales expenses as carrying costs.

[tagteam · Accepted solution]

• If you took the rental out of service as of January 1st, you cannot deduct typical rental expenses. If the property was available for rent, then such expenses can be deducted.
• You can include the cost of repairs if the property was available for rental use. If improvements were made, you can include those costs in the basis of the property.
• If the property was taken out of service as a rental as of January 1st, there should be no depreciation deduction showing from that date through the date of the sale (hence, no recapture for that period).

[10276]

Thanks so much for your reply

I am ready to file the 2022 income tax using online TurboTax Premier version.

In TurboTax, I will indicate stopping the rental activity as of January 1st 2022 with 0 day of rental and 0 day of personal use for the property while doing repair until the closing date of May, 2022. The repair cost from January to the selling date in May is about $4,000 and also I have an unhallowed loss of $5,150 from 2021 income tax Form 8582 Part VIII column (b) for this condo.

1. Where do I report the stopping rental date?

2. Where do I report these repair cost and loss numbers to adjust the cost basis? and would the unhallowed loss reduce my tax obligation?

3. How do I print all the 2022 income tax forms including all the worksheets for my record files from TurboTax Premier version.

Normally TurboTax only let me print a "pdf" of the tax forms submitted to the IRS at the end but not all the worksheets.

Thanks for your help

[DianeW777]

First you say you entered 'with 0 day of rental and 0 day of personal use for the property while doing repair until the closing date of May, 2022'. Instead you should say yes it was rented all year and yes to rented at fair rental value (if that is true).  When you select that the rental property is 'sold, retired, disposed of, etc., TurboTax will know how to calculate any depreciation for the final year.  

Depreciation for rentals is 27.5 year and uses the straight line mid-month convention (SLMM).  This means that you are entitled to a half month of depreciation in 2022.  You will enter the January 1st as the date of sale.

Report the sale under your rental asset.  Under Wages & Income select your Rental Income > Edit > Continue to the screen 'Tell Us More About This Rental Asset'. Select that you purchased it, also the item was sold, retired, ...., etc. > Yes always used 100% for business.

Selling expenses would include last minute repairs to prepare for sale, and if you used a cost other than your actual cost (such as fair rental value because it was lower than your cost) when you placed the condo in service for rental, then you would use actual cost to determine gain or loss at the time of sale. Add this to selling expenses if this is the case. The expenses would be capital improvements only not repairs or expenses that are ongoing such as utilities or minor repairs.

When you mention 'unallowed loss' it's not clear what you mean. However, if you had any losses that were not allowed in prior years and were carried over because of your income level, all losses are allowed in the year of sale and do not get included in your sale figures. TurboTax will know this information if you entered any passive unallowed losses from 2021.  When you select to Edit next to your rental property, scroll to Less Common Situations to review any carryover losses (from Form 8582 in your 2021 tax return as you mentioned).

Lastly, use the link below to print your tax return in TurboTax Online.  

• How do I print or download by tax return I filed with TurboTax? (check the hyperlinks as well)

@10276 

[Edited: 02/20/2022 | 6:58a PST]