2109584
I stopped renting in late 2019 and worked on it for 2020. then in march I sold it. looking ahead to 2021 tax return, is it better to claim 0 income for 2020 and claim the expenses (including taxes, depreciation, interest, etc) or should I just say that I took it out of service for 2020 and not claim any expenses including depreciation. would I be better off due to depreciation recapture issues to not keep it in service for 2020?
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Unfortunately, you don't really get a choice in the matter. It depends on the circumstances that will determine how or when the expenses are claimed and whether or not the rental was taken out of service or if the property still qualified to be considered in service.
Unless you continued to advertise and hold the property available for rent after the tenants moved out, it ceased to be a rental property between that time and when it was sold.
If it is no longer a rental property, the expenses that you incurred are personal expenses and not rental expenses. The "improvements" that you made to the property would be added to the basis and would be taken into account on your 2021 tax return when you report the sale of the property. The expenses for repairs or supplies are personal expenses and would not be deducted or added to the basis.
If the property did continue to be a rental property, then you would claim the repairs and supplies as an expense on Schedule E for the year in which they were paid. Improvements would be entered as a depreciable asset (carpet for example) placed in service when they were installed.
however, from a purely academic standpoint, would it be better to depreciate in 2020 and pay the depreciation recapture in 202, or reduce the depreciation recapture in 2021 by taking unit out of service in 2020 and not taking depreciation?
First way will cause depreciation recapture which is taxed as income. The other would lower your basis by the unclaimed depreciation so the capital gain would be more.
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