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cbtaxusa
Level 1

On schedule E do you add back repairs when you sell rental property or do repairs increase basis?

On schedule e when you go to sell a rental do you have to add repairs to your basis or are these considered expenses? Depreciation reduces basis?

4 Replies
Mike9241
Level 15

On schedule E do you add back repairs when you sell rental property or do repairs increase basis?

if it's a rental and if the expense is for repairs it's deductible and does not add to basis. however, there are numerous cases that try to distinguish between repairs and capital improvements which aren't deductible and do add to basis.

 

 

Critter-3
Level 15

On schedule E do you add back repairs when you sell rental property or do repairs increase basis?

Repairs expensed over the years do NOT increase your basis.  And Depreciation (allowed or allowable)  MUST be taken every year   and is recaptured when you sell.  

 

 

Carl
Level 15

On schedule E do you add back repairs when you sell rental property or do repairs increase basis?

You are most likely, confusing repairs with property improvements. Repairs are a deductible rental expense in the year the cost is incurred. Property improvements  are added to the cost basis in the year said improvement is placed in service, and the cost is depreciated over time. You'll enter property improvements in the Assets/Depreciation section of the program.

In the tax year you sell the property, all depreciation is recaptured and taxed.

 

Hal_Al
Level 15

On schedule E do you add back repairs when you sell rental property or do repairs increase basis?

As the replies infer, it's unclear what kind of repairs you're asking about.

 

Repairs deducted in previous years are ignored.  You already got your tax break for them.  Furthermore, you do not add them back as income.  That is, repair expenses previously deducted are not "recaptured"  the same as improvement depreciation claimed in the past is recaptured* ("added back").

 

Repairs made in the year of sale can be handled in one of  two ways: 1. if the repair was made  while the unit was still in service, it is deducted on schedule E as an expense.  From a practical standpoint, if you had any rental income that year, you can deduct the expense.  2. If the repair was made after you stopped renting it, the repair cost is added to your basis as fix up expenses (expenses of sale). 

 

* Even though Depreciation is "added back" as depreciation recapture, the improvement cost is added to the cost basis.  So, it's essentially a wash. Depreciation recapture is taxed at a different capital gains rate, hence the requirement for the complicated book keeping/reporting. 

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