Talk to me like I am 5. How in the heck do I account for improvements for rental property right before selling it?

Forum|Forum|1 year ago
September 30, 2024
2 replies
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I keep seeing folks say, just add them to your cost basis - but TT explicitly states one should NEVER adjust the original cost basis (it's already populated as it transfers from previous years).

So, exactly what does it mean when I read other posts that say to do that?

All TT gives me is a place allocate sales price, sales expenses (which wouldn't include, say, a new roof), land sales price and land sales expenses.

So how would I account for the cost of the new roof?

I thought about adding it as a new asset, but that makes no sense since it's being sold just weeks later.

TurboTax Home & Biz Windows

Anonymous_

Employee

@jeanne17 wrote:
I thought about adding it as a new asset, but that makes no sense since it's being sold just weeks later.

That is understood, completely, but it's the method you need to use when working with the TurboTax program.

jeanne17Author

Ok, so let's say I add the roof as a new asset - and then immediately sell it. (I guess?)

Roof was $7259. Placed in service 7/7/2023
Sold the house 9/1/2023.

TT then shows $44 for depreciation. Fine. Don't care.

But, in the asset disposition area, what is the sales price of the roof? $7259?
What is the sales expense for selling the roof? Also $7259?
(Obviously land is 0 in both sales price and sales expense).

Anonymous_

Employee

Allocate a portion of the total sales price to the roof.

CuriousDom

Why was the roof replaced? Was the cost incurred to simply bring the roof back to the same condition using the same materials?

Without knowing all the facts, it is more likely than not that the cost of the new roof will be classified as a repair expense if the answer is yes. If the cost incurred is not for "betterments made to increase the value" of the property, then it should not be capitalized.

Here is an article that you can reference if you want to dive deeper into this topic: Guide to expensing roofing costs (thetaxadviser.com)