Sold a rental. Cannot find how to raise Cost Basis beyond original purchase price.

[David951]

Core Issue: Filled out everything as I went along only to find there was no place where Capital Improvements could be added to the original purchase price to raise the cost basis on a rental property we sold in 2025.

What I've done: I've gone back to the entry and clicked "Update" but it solely takes me to start a whole new entry, not actually update the existing. One strategy might be simply to alter the "Purchase Price" to the Cost Basis, even though that is not what the entry says. Not able to actually "Update" posses a problem, plus not ever figuring how to add Capital Improvements. I've gone to Forms - Schedule E - Disposition Report and in the field "Cost or Other Basis plus Selling Expenses" I cannot alter the entry, nor right click (one an Apple MacBook Air) to see where it links back to. I've also gone to Form 4797, p2 (copy1), Line 21, which is the same figure and cannot right click or otherwise figure a way to alter the entry.

Were Capital Improvements somehow intended to be entered years ago when they were made, rather than now as part of establishing the Cost Basis in a sale? That is the only thing I can guess.

Any and all help appreciated.

[DavidD66 · Accepted solution]

Yes, your capital improvements should have been entered as separate assets for the tax year you made the improvements.  Those assets, as part of the rental property should also have been depreciated.  You do NOT just add them to your cost basis.  When you calculate the gain (assuming you have a gain) on the sale, you have to calculate depreciation recapture for all the depreciation taken, or eligible to be taken.  That means you have to include the depreciation you could have/should have taken on the capital improvements, even though you didn't deduct it as an expense in previous years.

There is a work around for this. You can file Form 3115, Application for Change in Accounting Method and take all the missed the depreciation on your current year return.  While you can file Form 3115 with TurboTax, it's not a simple form.  For more information see the following IRS website:

About Form 3115, Application for Change in Accounting Method 

[David951]

Thanks. As I suspected. In fact, the depreciation was increased in 2012 when the capital improvements were made by my wife's ex, but apparently the cost basis increase didn't carry through in Turbo Tax from then until now. We are paying for the Depreciation recapture, but unable to also take advantage of the cost basis increase. Darn!  Too complicated unfortunately to try to correct it seems, as it was partially done right, but just not carried through for some reason over the years.