Sold Rental property where do I add improvements

Forum|Forum|5 years ago
April 27, 2021
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Prior to selling my rental I had to make a lot of repairs to make it sellable. I had the tenants leave in August and then put about 70,000 into it. I sold my rental in Dec 2020. I have no idea where to put that 70,000 since it isn't rental expense. Do I put it in asset sales expenses? Currently I have asset sale price of 269,325 and land sale 135,675 (sold for 405,000) and then I put asset sales expenses of 77,000. But I don't know if that is the right place.

I read some spots where they put it in the original purchase price. I bought it for 360,000 so would I reduce it by 70,000. Seems like that would case red flags. Please help, where am I suppose to put it?? Thank you in advance

Mike9241

$70K is more than minor repairs. it's almost 20% of the sales price. thus you have to look to the expenditures to see which are repairs and which are improvements

Repairs to Your Rental Property
Repairs are usually one-off fixes that keep your property in its current condition. While cost isn’t a factor in determining a repair or an improvement, repairs are often small and inexpensive. Common repairs might include basic maintenance such as unclogging a shower drain or patching a hole in the wall. According to the IRS, most repairs don’t add significant value to the property or extend the life of the property. The repair simply maintains the home in its current state.

Improvements to Your Rental Property
Anything that increases the value of your rental property or extends its life is considered a capital expense. As such, it must be capitalized and depreciated. These improvements are usually more labor-intensive and expensive than repairs.

mle4Author

Employee

Sorry repairs would be the wrong word to use, I improved the value of the property. I had the entire house redone. Cabinets, flooring, bathrooms, counters, windows, appliances (minus fridge), tore walls down ect.. am I not able to write that off?

ThomasM125

You need to add those costs to the cost of the property, which it looks like is $360,000 in your case. So, when you report the sale, those costs will reduce the gain that you will pay tax on. They aren't selling expenses, as those are real estate commissions, inspections, legal fees and the like.

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