Can I add improvements to rental property that were done in prior years to my current house value?

maderjoey — Tue, 04 Jun 2019 20:46:50 GMT

I owned a house and moved out in January of 2014 and finished the upstairs of my house starting in February. The house did not start to rent until July of 2014. I have also replaced flooring and a fence. I have been depreciating the value of the house since I started renting it but never included the value of the improvements. I did this in hopes that when I sell, it would lower my capital gains I would have to pay taxes on, I would add the value of the improvements to my total costs at the point of sale. Is this allowed? Can I begin to add the value of the improvements to the value when depreciating going forward? Do I need to go back amend prior tax returns?

You should add the cost of your capital improvements now,...

DianeW — Tue, 04 Jun 2019 20:46:52 GMT

You should add the cost of your capital improvements now, making sure to put the correct date placed in service. That date would be a prior year. The depreciation will calculate based on the correct date and provide you with a depreciation amount for the current year.

The IRS law is clear, which eliminates the choice on our part. Under the tax law, depreciation is considered allowed or allowable meaning that whether or not you used the deduction in prior years, it will offset your cost basis to determine gain.

You can amend the open returns to take advantage of the depreciation deduction for each of those years. Currently, amended returns can be completed for 2014 (if completed by April 15, 2018), 2015, and 2016, to accurately reflect rental income and expense if this activity was taking place in earlier years.

When you sell the property you will reduce the cost basis by all depreciation that would have been allowed if you had listed it on the return from the beginning.

To record the capital improvement asset you can follow these steps in TurboTax online or desktop.

Select Income & Expenses > scroll to Rentals, Royalties, and Farm
Continue to the screen to edit your rental property
Select "none" on the "Situations" screen (unless you believe something does apply)
Select Assets/Depreciation to enter your capital improvement.

Click the images attached to enlarge and view for assistance.

Instruction to amend prior year returns is included below. Do nothing until you have read all the information so you don't loose the original return figures.

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topic Can I add improvements to rental property that were done in prior years to my current house value? in Investors & landlords

Can I add improvements to rental property that were done in prior years to my current house value?

You should add the cost of your capital improvements now,...