The fact the rental has been vacant prior to the sale is irrelevant. If after the last renter moved out you did not live in the property for one single day as your primary residence, 2nd home or vacation home, the property remains classified as residential rental real estate, provided the vacancy was less than a year. If more than a year, then I would expect the property to have been converted to personal use so as to stop depreciation. That would change everything I'm about to tell you.
Expenses incurred after the last renter moved out are not deductible as rental expenses. But they may be deductible as sales expenses.
Property improvements are still entered as property improvements. But if the property improvements are done after the last renter moved out, the business use percentage of that listed property improvement in the Assets/Deprecation section will be zero percent business use.
The information below is provided moreso for others reading this thread. But I'm sure you'll find it helpful and informative too.
-
RENTAL POPERTY ASSETS,
MAINTENANCE/CLEANING/REPAIRS DEFINED
Property Improvement.
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.
To be classified as a
property improvement, two criteria must be met:
1) The improvement
must become "a material part of" the property. For example,
remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet.
Replacing that old Central Air unit.
2) The improvement
must add "real" value to the property. In other words, when the property is appraised by a qualified,
certified, licensed property appraiser, he will appraise it at a higher value,
than he would have without the improvements.
Cleaning & Maintenance
Those expenses
incurred to maintain the rental property and it's assets in the useable
condition the property and/or asset was designed and intended for. Routine
cleaning and maintenance expenses are only deductible if they are incurred
while the property is classified as a rental. Cleaning and maintenance expenses
incurred in the process of preparing the property for rent are not deductible.
Repair
Those expenses
incurred to return the property or it's assets to the same useable condition
they were in, prior to the event that caused the property or asset to be
unusable. Repair expenses incurred are only deductible if incurred while the
property is classified as a rental. Repair costs incurred in the process of
preparing the property for rent are not deductible.
Additional clarifications: Painting a room does not qualify as a
property improvement. While the paint does become “a material part of” the
property, from the perspective of a property appraiser, it doesn’t add “real
value” to the property.
However, when you do
something like convert the garage into a 3rd bedroom for example,
making a 2 bedroom house into a 3
bedroom house adds “real value”. Of course, when you convert the garage to a
bedroom, you’re going to paint it. But you will include the cost of painting as
a part of the property improvement – not an expense separate from it.
-
Reporting the Sale of
Rental Property
If you qualify for
the "lived in 2 of last 5 years" capital gains exclusion, then when
prompted you WILL indicate that this sale DOES INCLUDE the sale of your main
home. For AD MIL personnel who don't qualify because of PCS orders, select this
option anyway, because you "MIGHT" qualify for at last a partial
exclusion.
Start working through
Rental & Royalty Income (SCH E) "AS IF" you did not sell the
property. One of the screens near the start will ahve a selection on it for
"I sold or otherwise disposed of this property in 2017". Select
it. After you select the "I sold or otherwise disposed
of this property in 2017" you continue working it through "as
if" you still own it. When you come to the summary screen you will enter
all of your rental income and expenses, even it it's zero. Then you MUST work
through the "Sale of Assets/Depreciation" section. You must work through
each individual asset one at a time to report its disposition (in your case,
all your rental assets were sold).
Understand that if
more than the property itself is listed in your assets list, then you need to
allocate your sales price across all of your assets. You will only allocate the structure sales price;
you will NOT allocate the land sales price, since the land is not a depreciable
asset. Then if you sold this rental at a
gain, you must show a gain on all assets, even if that gain is $1. Likewise if
you sold at a loss then you must show a loss on all assets, even if that loss
is $1
Basically when
working through an asset you select the option for "I stopped using this
asset in 2017" and go from there. Note that you MUST do this for EACH AND
EVERY asset listed.
When you finish
working through everything listed in the assets section, if you ever at any
time you owned this rental you claimed vehicle expenses, then you must also
work through the vehicle section and show the disposition of the vehicle. Most
likely, your vehicle disposition will be "removed for personal use",
as I seriously doubt you sold your vehicle as a part of this rental sale.
