I have recently sold a non-owner-occupied single-family rental property. It was rented for a number of years. At no time did I ever live in the home. In 2024 there has been zero rental income as I rehabbed the property for sale. My questions are related to the expenses of ownership incurred in 2024. I assume that the expenses itemized on the Settlement Statement will be deducted from the sale price. I also assume that the cost of my improvements to the property will be added to my depreciated Cost Basis in calculating my net gain on the sale. How do I treat the Utilities, Property Taxes, Insurance, and other expenses (not improvements) incurred this year as owner of the property? Are these expenses treated as a cost of sale? Are they added to my Cost Basis? Are they reported on Schedule E for 2024 personal tax return even though there was zero rental income? Thank you.
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With respect to work done on the property, improvements are capitalized and added to your basis. Repairs are not capitalized and are not deductible if the property is not being used as a rental or in a trade or business. IRS Publication 527 talks about the difference between improvements and repairs.
Sales expenses are deductible. Here is a discussion about what constitutes a sales expense.
You may be able to capitalize property taxes, interest, and "carrying charges" under Section 266 for real property. Here is a link to the relevant regulations.
Note that, to do this, you must attach a statement to your return stating that you are making the election, which means that in TurboTax Online, you may need to file your return by mail.
Be sure to account for all depreciation that you took or could have taken. This amount will be considered "unrecaptured Section 1250 gain" on your upcoming tax return. If you forgot to take the full amount of eligible depreciation, be sure to file Form 3115 with your tax return for this year so you can make the retroactive adjustment and not pay tax on depreciation you never benefited from taking.
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