Tax Year Prior to 2020: Claiming money spent on refurbishing a previously rented condo for sale

[Albastar]

I recently sold a condo that I have been renting out for about 18 years. To fix it up prior to selling, I spent about $22,000 on it. I know I can claim for major items like appliances, carpets and so on, but what about all the little stuff like angle stops, masking tape, caulk, paint, mouldings, tile etc?  How can I claim for about $1,000 in incidentals?

[NCperson]

as long as you have receipts, it's deductible (or risk you won't be audited   )

[AHylton]

I would track it under supplies or repairs and keep the receipts. You should be fine.

How did you track the capital improvements like carpet and appliances? Were they put into service the same year you sold the property? I installed new carpet in 2018 and sold my property 4 months later (still in 2018). I'm trying to decide if I should just include the value in the adjusted cost basis and not actual list them in the Assets screen. Or should I expense it under safe harbor at which point I assume I cannot treat it like a capital improvement.

[Albastar]

Thanks for your response.  🙂

I did the same as you: putting everything into service the same year the place was sold.  So I think I'll do as suggested and put the small stuff into regular expenses.  I'm going to put the larger items like carpets and appliances into "Assets" but it looks like I can only claim $10,000 this year and the remainder next year.  Still kinda fuzzy on this.

[KarenL]

Just a little clarification.  If you sold the property, then any "permanent" improvements that were not already depreciated, are added to the cost basis to reduce potential capital gain/loss.  Any additional repairs or expenses to get it ready for sale, are Selling Expenses. 

If the property is a current rental, then permanent improvements (items that add value to the property) are Assets and depreciated.  Other items can be entered as Repairs & Maintenance.  

Hope that helps! 

[AHylton]

Interesting. I would have thought if you sell the property there shouldn't be any sort of limitations on passive activity losses you can claim.

[AHylton]

Thank you for the extra clarification KarenL! This is very helpful information 🙂

[KarenL]

You're very welcome! 

[AHylton]

Hi KarenL. I did have improvements made in the year my rental property was sold. When I go to mark my rental property asset as sold do I simply add the cost of the improvements to the original cost basis? Will that raise any red flags?

Also, it seems that Turbo Tax isn't including my previous improvements from my assets list. Turbo Tax is calculating a much higher gain than I expected. Is there some action I need to take to force Turbo Tax to account for my previous capital improvements?

For example I purchased the property in 2006 for $62,402.00. I sold the property in 2018 for $56,200 and had selling costs of $6,965.00 Depreciation taken on the rental property was approx $27,390. Total capital improvements was $7,871.

Adjust cost basis: 62,402 + 7,871 - 27,390 = 42,883

Sales price: 56,200

Sales expenses: 6,965

Gain: 56,200 - 6,965 - 42,883 = 6,352

When I go through the screens to sell the property Turbo Tax is stating my gain is $14,251. What am I missing? Is there some other part of the calculation that Turbo Tax is doing but it just doesn't show the details? Even when I add in the 25% depreciation recapture I still end up short of their total.

Sorry for the long post. Do you have any thoughts on what I might be doing wrong? My math on paper seems correct so maybe I'm doing something wrong in the application.

Edit: I went through and added my improvements to the original cost basis after which I was closer to the gain I was expecting. However it affected my depreciation for 2018 so that feels like the wrong thing to do. I'm kinda stuck right now :(

[AHylton]

Hi KarenL. I am having trouble getting Turbo Tax to report the correct gain from the sale of my rental property. I have done the math on paper and there is about an $8,000 difference between me and Turbo Tax.

It seems like Turbo Tax is not taking into account the cost basis of the capital improvements I have made over the years. Is there anything special I need to do to make that happen?

Also, for the capital improvements I made but not depreciated because of selling my rental how do I account for that? I did a trial run where I added that amount to the original cost basis of my property but that affected my depreciation for 2018 so it felt like the wrong approach. Instead should I reduce the Sales Price by the amount of capital improvements I made in 2018?

I'm kind of stuck right now because I cannot get Turbo Tax to calculate anywhere near the numbers I am getting on paper.

Thank you!