Are all improvements that I made to my home during the the time that I owned it counted to determine the adjusted cost basis or do I just those made for the tax year?

[TinkerBell01]

Do I add up the amounts reported on Schedule E for the rental years? For a couple of the years I rented, the amount reported on Schedule E is more than the amount shown for the current year depreciation for the Alternative Minimum Tax on Form 4562. Do I enter both amounts that are reported for the same year? I am using TurboTax Online. I have used a disc to do my taxes until this year. I imported last year's tax return from the PDF file and thought TurboTax online would figure out the depreciation   I want to make sure I am looking in the right place for the depreciation. If I got a disc would it figure it out? I am confused on what figures to add.

[Cynthiad66]

Yes.  If you are trying to figure your cost basis for property rented.  It is the actual cost plus all major renovations or improvements to the property since you owned it.  The renovations could have been made prior to renting the property too.  You should be able to find this on your depreciation schedule.  Since you imported last year's tax file to TurboTax Online the information should be there listed on Form 4562.

The basis of property you buy is usually its cost. You may also have to capitalize (add to basis) certain other costs related to buying or producing the property. Your original basis in property is adjusted (increased or decreased) by certain events. If you make improvements to the property, increase your basis. If you take deductions for depreciation or casualty losses, reduce your basis. You can't determine your basis in some assets by cost. This includes property you receive as a gift or inheritance. It also applies to property received in an involuntary conversion and certain other circumstances.  See Publication 551 for more details.

Basis of Assets

[TinkerBell01]

Thank you so much! I really appreciate your thorough response!!

[gjgogol]

in TT, under the Cost or other basis, do I include all capital improvements at their original value, or do I reduce original value of improvement to allow for the depreciation taken while I rented it?  also, what specific items can i include in cost basis, e.g. closing cost when i purchased home; closing cost of selling home; points paid when i refinanced loan while renting it, etc?

[Opus 17]

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@gjgogol wrote:

in TT, under the Cost or other basis, do I include all capital improvements at their original value, or do I reduce original value of improvement to allow for the depreciation taken while I rented it?  also, what specific items can i include in cost basis, e.g. closing cost when i purchased home; closing cost of selling home; points paid when i refinanced loan while renting it, etc?

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You must account for depreciation but I'm not sure where.  It's not an adjustment to cost basis, because depreciation recapture is taxed differently from ordinary capital gains.  Was it a current rental on schedule E when you sold the home or previously a rental?  You may also need to account for non-qualified use.  I'm not sure who to call on who has used this part of the program.  @VolvoGirl  @Critter-3 @Hal_Al @macuser_22 ????

As for items from the closing costs that are allowable adjustments to basis, they are listed on page 8 of publication 523.

https://www.irs.gov/pub/irs-pdf/p523.pdf

[gjgogol]

you asked...Was it a current rental on schedule E when you sold the home or previously a rental? I lived in the house from 2006 to 2010.  In 2010 I converted it to a rental until 2019.  For 2020 tax return I took it out of service on 1/1/2020. It sat vacant all of 2020 and part of  2021 until i sold it in March 2021.

Also, can i add allowable closing costs to my cost basis for both when I purchased the home as well as when I sold it?

[JohnB5677]

To start with, the property is considered rental property because it was not your primary residence for 2 out of the last 5 years.

Improvements should have been amortized over time, just like the building should have been. If that was the case those improvements would be already included in your basis, and the depreciation would have been accounted for.

If you simply took the expense for the improvements and took the deduction in the year that it occurred, you would not include it in the cost basis.  You've already taken the full deduction. 

 Yes, you can add allowable closing costs to the cost basis for both when you purchased the home as well as when you sold it.

[gjgogol]

more details and questions...

- when i "took it out of service" on 1/1/2020, i indicated in TT that I converted this property from a rental to personal use in 2020 and thus in 2020 TT I input for each depreciable asset that 1/1/2020 was the date of sale or disposition (as guided by TT instructions).  i did NOT live in it at any time in 2020. was that a mistake? i was told in TT forum that i could not convert it to personal use if i did not live in it for at least one day. is this true? however, i was also told that i could not claim it as a rental if I did not attempt to rent it out during that time. is that true? i feel as though i am in a catch 22 situation.

- fast forward to today; i subsequently sold the property in March 2021 and am now in a quandary as to how to report the sale, i.e. as a business property or as a rental? do i need to amend my 2020 return? i don't know which way is correct; i don't know my options and i don't know what is best financially (tax-wise).

[Opus 17]

@gjgogol 

If you took it out of service on your 2020 return, then the sale in 2021 was the sale of personal property.  You can report it under "Sale of your home."  The program will ask when you lived there, and since you did not live there recently, all your gain will be taxable.  You will also get asked if you previously claimed depreciation, you will need to enter that number which you can get from previous tax returns.