rental property being sold in year not rented out

[econberkeley1]

My renter will leave by the end of the year. I dont want to rent it out again. I want to repair, renovate and sell it next year. It will be very hard to do that when the renter is in the house. However, based on what I read, if the rental property is not rented out or I dont advertise it, it is no longer considered rental property and it is going to complicate my tax return cost me money. How are you guys handling this issue?

[KrisD15]

That is true.

Repairs are only expensed when it is a rental.

If you stop renting it, you will need to report that it was "Converted to Personal use".

At that time the rental will no longer be depreciated but you will need to know all the depreciation you took (or could have taken) on the rental and that total will need to be reported when you do sell. 

Repairs that don't add real value cannot be expensed nor added to the basis/value since they will be considered as bringing the property back to the original condition. 

If you make a major remodel, you can add that to the basis, but only materials, not your labor.

When you sell, you will need to report it as a sale of a business asset and "Recapture Depreciation".

[econberkeley1]

If I need to paint the house and renovate the property before selling it, how can I do that while I am renting out the property?  Also, it does not make sense to put an ad for the property when it is not available for rent due to renovation/repairs. I am confused.

[PatriciaV]

In general, major expenses (improvements) incurred while making a property ready to be sold are added to your basis in the property. The increased basis will reduce your taxable gain on the property. Maintenance repairs are not deductible, but you can include them in your selling costs if they were necessary to make the property saleable.

From IRS Pub 527: Vacant while listed for sale.  If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. 

[ramonzzf]

I have a similar situation.

My previous primary home did not get sold in 2023, so in summer 2023, we rented it out with a one-year lease. In summer 2024, we decided stopping renting it, and started to do repairs and remodeling so that we can get it sold in 2025. For while year of 2025, it was not our primary home. 

My question is: for the second half of 2024, the property is not primary home and it's not renting, so I selected "convert to personal use" (please tell me if this correct). Should I include part of the property tax and insurance in my itemization list corresponding to the personal use of second half of 2024?

Thanks

Ramon

[PatriciaV]

Yes. If you no longer consider the property to be a rental but a "second home," you may report related mortgage interest and property taxes as itemized deductions. Insurance is not deductible.

Other expenses you incur to make the property ready to be sold should be added to your basis in the property and may reduce any gain on the sale.

@ramonzzf 

[ramonzzf]

Thanks SO SO Much!!

[ramonzzf]

Since I have enter the mortgage 1098 of my current primary home which will appear in the mortgage interest session of schedule A, how to report (non-rental) part of the mortgage interest of the stopped-rental home to itemized deduction via turbotax? 

@PatriciaV 

[PatriciaV]

Enter the mortgage interest for your "second home" under the same topic - Deductions & Credits >> Your Home >> Mortgage Interest. You may need to click on "add a 1098" to enter this interest.

@ramonzzf