rental property being sold in year not rented out

Forum|Forum|1 year ago
March 21, 2025
1 reply
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My renter will leave by the end of the year. I dont want to rent it out again. I want to repair, renovate and sell it next year. It will be very hard to do that when the renter is in the house. However, based on what I read, if the rental property is not rented out or I dont advertise it, it is no longer considered rental property and it is going to complicate my tax return cost me money. How are you guys handling this issue?

Not A Product Question

KrisD15

That is true.

Repairs are only expensed when it is a rental.

If you stop renting it, you will need to report that it was "Converted to Personal use".

At that time the rental will no longer be depreciated but you will need to know all the depreciation you took (or could have taken) on the rental and that total will need to be reported when you do sell.

Repairs that don't add real value cannot be expensed nor added to the basis/value since they will be considered as bringing the property back to the original condition.

If you make a major remodel, you can add that to the basis, but only materials, not your labor.

When you sell, you will need to report it as a sale of a business asset and "Recapture Depreciation".

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econberkeley1Author

If I need to paint the house and renovate the property before selling it, how can I do that while I am renting out the property? Also, it does not make sense to put an ad for the property when it is not available for rent due to renovation/repairs. I am confused.

PatriciaV

Employee

In general, major expenses (improvements) incurred while making a property ready to be sold are added to your basis in the property. The increased basis will reduce your taxable gain on the property. Maintenance repairs are not deductible, but you can include them in your selling costs if they were necessary to make the property saleable.

From IRS Pub 527: Vacant while listed for sale. If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses.

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