How to correctly record improvement to a previously rented home on Turbotax Business sold in same year

[Bo77]

I always use Turbotax Business for partnership (multi-member) tax return. Rental property was leased until end of May 2020. Plan was to sell, so improvements (eg $35,000) were made to the home from June to end of Aug 2020 before it was listed. Home sold on 9/3/20.  How do I correctly record this transaction on Turbotax Business to capture the improvements made after home ceased to be a rental and to ensure it is added to the cost basis of the disposed asset, and no depreciation taken (because improvement was not used by business).

Also, I have a case where a previous rental is now currently held for sale, and improvements were done in 2020 and 2021. Home will be sold in 2021. How will improvements over two tax years be reported for next tax return? Thanks

[tagteam]

In TurboTax Business you can add the assets (improvements) as "Other asset type", select "Z" as the type of asset, and then select "Non-recovery Property" on the screen entitled "Enter Asset Type and Class". There will then be no depreciation deduction.

[MinhT1]

Improvements can be added to the cost basis of the house, even after the rental period. You do not enter them as assets to be depreciated, but can add them to the cost basis of the house.

They will lower any capital gain you may have on the house.

[tagteam]

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@Bo77 wrote:

How will improvements over two tax years be reported for next tax return?

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You would enter the improvements as separate assets in the program in the tax year in which they are placed in service.

[Bo77]

Thanks for the response!

I had entered the improvement as a separate item in Rental Real Estate Asset (Depreciation) for the rental property with in service date of 1 day before actual disposal date, 100% business use, and $0 received for the disposal. This resulted in no depreciation charge, and a capital loss to offset the capital gain for that rental property. Is this one way to achieve the same result as the method you suggested? or is this a completely wrong unsustainable approach that won't make sense for multi-year improvement work on a previously rented home?

[tagteam]

it appears as if you are referring to different improvements; one of which had already been disposed of along with the rental property and another which is still in service.

With respect to the latter, you need to enter the improvement (or improvements) separately in the program so the program can properly calculate depreciation deductions for each tax year. 

[Bo77]

Yes. One was sold in 2020 along with improvements that was completed after lease ended. The other is no longer available for rent after last tenant moved out last Nov but its currently being refurbished / prepared for sale. I am assuming no depreciation applies to the improvements in both cases.