Depreciation vs. expensing for Residential Rental

[garycarols]

My long-time tenant moved out in January, 2024.  I went in and gutted the carpeting & replaced with hardwood floors/replaced several windows/replaced sink/replaced fireplace insert/replaced hot water heater/and of course repainted and cleaned and cleaned and cleaned.  I did all the work myself.  The receipts total about $12,000.  I don't know whether to expense it all, or to depreciate all/some of it.  I appreciate your help on this!  

[KrisD15]

Items costing 2,500 or less can be expensed. The flooring would be considered a capital improvement, be listed as an asset, and depreciated. Your time cannot be charged. 

[garycarols]

Thank you--that helps a lot.  Regarding the flooring, the total cost was well under the $2500 limit that can be expensed . . . so can the flooring be expensed as well?  Again, thank you.

[MarilynG1]

Any improvements or repairs done while the property was not a rental would not be considered 'Rental Expenses'.

What you can do is add all you spent to improve the property before renting it again,  to the Cost Basis you use when renting the property again (or to the Cost Basis when you sell the property).  This will increase the Depreciation you get each year (if you rent again), or decrease the Capital Gain (if you sell the property). 

For example, if your property was worth 100K and you spent 12K fixing it up, it is now worth 112K, whatever you do with it next. 

In TurboTax, you would indicate that you returned the rental property to Personal Use in January 2024 (give date renter moved out).  You would still claim Property Tax, Mortgage Interest, and any expenses for the month of January prior to that date.

@garycarols 

[garycarols]

Something I did not mention:  I will be renting the home again, once all the spiffing up has been done.

[MarilynG1]

When you set up your Rental Property again, use the 'new and improved' amount as the Cost Basis in the Property Profile section in TurboTax. 

@garycarols 

[garycarols]

I intend to rent the home again when my clean-up work is done--in fact, I already have a tenant lined up.  

I'm just curious, though--when I get too old to take care of this rental home, I will probably use it instead for my grandkids to stay in for extended visits.  How would that work--if I don't rent it/don't sell it?  Will I just stop preparing the Schedule E without any consequences from the IRS, and wait until I sell it (or my estate sells it) and then worry about the depreciation recapture/etc?  

In advance, thank you for your advice.

[Vanessa A]

Yes.  When you stop using it as a rental, you will just stop reporting the rental income to the IRS with no consequences. 

 Then when you sell the property or your estate sells the property, they will need to recapture the depreciation that you took during the time it was used as a rental property. 

 

[garycarols]

Thank you Vanessa--that's good to know!