Rental property was renovated after tenant moved out to sell it at fair market value of $150000. After sale, do renovated expenses of $18000 (new paint, new kitchen countertops, repair to HVAC and plumbing etc..) be 100% improvement expenses and NOT SPLIT to land by the Improvement to Land ratio (85% improvement and 15% land) for which the rental property was depreciated for the last 11 years.
Then, do the land sale expenses in this case be split only for sale commission and other sale charges in the HUD sale statement and not including any portion of the above mentioned $18000 of renovated expense.
Thank you for your answer
The improvements you mentioned are added to the basis of the total property (land + house) in order to calculate your capital gain on the sale.
You do not split the costs between land and improvement, but consider the property as a whole. [The only time you separate the land and the improvement is when you are calculating depreciation.]
The improvements you mentioned are added to the basis of the total property (land + house) in order to calculate your capital gain on the sale.
You do not split the costs between land and improvement, but consider the property as a whole. [The only time you separate the land and the improvement is when you are calculating depreciation.]
"Renovation sales expenses must be entered as non-business assets" answered for a similar question like mine by TurboTaxColeen, the link of the answer is below:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4327248-how-do-i-enter-the-sale-of-a-rental-property-so-that-i-make-sure-to-pay-the-capital-gains-tax">https://ttlc.intuit.com/questions/4327248-how-do-i-enter-the-sale-of-a-rental-property-so-that-i-make-sure-to-pay-the-capital-gains-tax</a>
By entering the renovation sales expenses as asset and sold, the capital gain reduced around $20,000 vs using it per the first answer above. So I think the link suggestion makes sense, since the renovation expenses are only for the improvement portion which was depreciated.
I hope an expert will be able to clarify which approach is valid between the (1) renovation of sale expenses entered as non-business assets or (2) the renovations sale expenses entered towards the whole sale amount (bldg. + land).
Correct web link bwlow, I had pasted wrong weblink above, sorry!
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4445792-sold-a-rental-house-on-oct-1-stopped-advertising-for-rent-july-31-did-repairs-for-renting-and-additional-work-for-selling-where-do-i-put-the-cost-of-work-for-selling">https://ttlc.intuit.com/questions/4445792-sold-a-rental-house-on-oct-1-stopped-advertising-for-rent-july-31-did-repairs-for-renting-and-additional-work-for-selling-where-do-i-put-the-cost-of-work-for-selling</a>
It certainly would make sense to add the improvements as an asset IF you were keeping it as a rental property. My understanding of your situation is that: it was a rental property; tenant moved out; improvements were made; you sold the property. Is that correct? It stopped being a rental property when the tenant moved out, so there is no purpose in adding the improvements as an asset.
Thank you for your correct answer.
You described it correctly above. I agree with you that adding the improvements as an asset serves no purpose. My ignorance. My capital gain comment of reducing capital gain of $20,000 is in error due to me putting zero on the prior depreciation which caused the capital gain this high.
Between the two approaches capital gain is the same.