Author Topic: Can't figure out how to deduct improvements made right before the sale of rental  (Read 325 times)

Omy

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We sold our rental last summer. We did some improvements right before selling since it was a mess.

Turbotax seems to allow us to deduct improvements that are less than $2500, but only gives us partial credit for improvements greater than $2500. Shouldn't we be able to deduct the full cost of the improvements we made to put it on the market? If so, any clue on how to get TurboTax to play nice?

Omy

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I realize this question probably needs more clarification:

Tenants moved out in early May. We started repairs and improvements right after they moved out. Put it on the market and sold it in June.

1) Should repairs after tenants moved out show up on Schedule E - or go somewhere else since they happened after it was no longer a rental? Repairs were needed to address tenant damage/wear and tear.

2) Should improvements done after tenants moved out show up on Form 4797 or somewhere else? If I can figure out where to put these amounts, I can probably coax Turbotax into cooperating.

bacchi

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What do you mean by "after it was no longer a rental?" Was the property converted back to personal use?

zygote

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The property doesn't have to be occupied to be a rental. Vacancy repairs have always been a thing. I would consider it a rental until the day it was sold and add all the expenses to Schedule E.

(I'm not a tax specialist, don't take my advice as gospel, etc.)

Omy

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I appreciate any and all thoughts!

It was not converted to personal use after our last tenant left, so my understanding is that Repairs would be on Schedule E (which we've done).

However, Turbotax is putting Improvements made in that last month before sale on Part 2 of Form 4797 (line 10) instead of adjusting the basis (which seems to happen in Part 1 of that form). Does anybody know if this is the correct way to handle those Improvements? Or do I need to coerce TT to move the Improvements up to Part 1 of Form 4797 (or somewhere else altogether)?

Sibley

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Any expenses entered on the Schedule E would flow through the sch E to the face of the 1040 as rental gain/loss, they would not impact the basis on form 4797.

Expenses that you capitalized, ie, added to form 4562, would flow through to form 4797, but I believe would be accounted for as short term gains/losses in this instance, and likewise those would not impact the sch E at all.

I'm not practiced enough to be able to give more specific advice re 4797 or experienced in Turbotax to tell you how to navigate their interface.

morethanconquerors

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It depends on the improvement. If it's a capital improvement, you would get only a small amount of depreciation to deduct against your Sch E income, but the cost would add to your rental property basis, and reduce your capital gain.

Omy

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I think that's where we ended up. I'm not positive that turbotax put everything in the correct lines of Form 4797, but the capital gains and basis now seem correct.