Where to enter the remodeling cost for my rental property that was sold right after the remodeling

[KenjiT]

I renovated my rental property last year and sold the property right after the remodeling. 

How and where do I put this cost in Turbotax?

Should I not enter this cost as another asset for this rental property since it was never rented out after the remodeling? 

[KrisD15]

If the property was not an active rental when the repair were made, add that expense to the basis when sold.

In TurboTax, you might need to select "Converted to personal use" first, to get it off Schedule E and then enter it as a "Sale of Business Asset" to report the sale. Be sure to add the repair to the basis but also report the prior depreciation.

[KenjiT]

Thank you for your quick response!

I went to the "sale of business property" section and found several options. 

Two options seem relevant: 

(a) Sales of business or rental property that you haven't already reported

(b) Sales of real estate, cars, or anything else for which you receive payments over two or more tax years (installment sales)

The first one looks more relevant and the second one is not so clear.  Which one should I select?

Re: adding the expense to the basis, do I reflect this cost by reducing the "total sales price" by the renovation cost?

[KenjiT]

I have one correction to my previous question. 

Re: adding the expense to the basis, there is a line item called "Cost of Property (or Tax Basis) Plus Expenses of Sales".  Can you confirm if I should put here (a) the original cost of the property, (b) the cost of the renovation, and (c) expenses of sales such as closing costs?

Can you also let me know which one I should select for this entry: 

(a) Sales of business or rental property that you haven't already reported

(b) Sales of real estate, cars, or anything else for which you receive payments over two or more tax years (installment sales)

The first one looks more relevant and the second one is not so clear.  Which one should I select?

Thank you!

[DianeW777]

No, you do not reduce the selling price. When you enter in Sale of Business or Rental Property you add the renovations to the original cost of the rental. Yes add all of the items together.

Select (a): Sales of business or rental property that you haven't already reported.  See below for your entry steps.

1. Wages & Income at the top
2. Scroll down to Other Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter your sales information, do not make an entry for depreciation (no zeros)
   1. Description of the Property (Second Home/Previous Rental Home)
   2. Date acquired and date sold
   3. Total Sales Price
   4. Cost (Original/Improvements/Sales Expense)
   5. Depreciation

                                        

@KenjiT 

[KenjiT]

Thank you for your response!  This is very helpful. I just have one follow-up question.

You mentioned that "do not make an entry for depreciation".     

Can you explain to me why I should not put any depreciation amount in this place? 

Thank you, 

[KenjiT]

Hi @DianeW777 , I'm following up with you since I haven't heard back from you yet. 

You mentioned that "do not make an entry for depreciation".     

Can you explain to me why I should not put any depreciation amount in this place? 

I have another question. This may be a dumb question, but I cannot use property taxes for estimating the adjusted cost basis, right? 

Thanks, 

Kenji

[PatriciaV]

Yes, you should enter the total depreciation taken on the Rental Property when reporting the sale information.

No, do not use the property tax assessment as your adjusted cost basis. As you said earlier, your basis is the original purchase price (see below) plus the cost of the renovations. Also add any selling expenses to the amount you enter on the basis line, per the instructions on the screen.

If you have previously reported this rental in TurboTax, look for Form 4562 Depreciation Report. This report lists all the assets for your property with columns for Cost, Land, Prior Depreciation and Current Depreciation. 

• Your total cost basis from this report would be Cost + Land. 
• If there is more than one line on this report, use the Totals. 
• Your total depreciation is Prior Depreciation plus Current Depreciation (if any).

[KenjiT]

@PatriciaV 

Thank you for your response and clarification!    

Kenji