Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.
03-04-2018 08:39 PM
We purchased a home in 2003 which became our primary residence in 2004. We lived there until 2013 when we put
it up for sale and moved into our current home. After a few months of marketing, we decided to rent it. While it
was rental (between tenants) we had new windows, doors and siding installed. We sold the rental in 2017. Where
would I account for the repairs and improvements. I assume that I can add that to my property cost basis on form
4797. What about other marketing and closing costs? Can I add that to the basis?
03-12-2018 11:09 AM
Regarding the repairs and improvements you made during the time you used property for personal purpose (from 2003 until 2013 before you rented it out):
You cannot include repair cost in your basis, pub 523 provide examples of repair/improvements you CAN’T include in your basis:
However, if the repairs directly benefit or are incurred as part of a larger project that's a capital improvement to the building structure, remodeling or restoration of your home, then the cost of the painting is considered part of the capital improvement and you add them to the basis of your home.
Any improvements that add to the value of your home, prolong its useful life, or adapt it to new uses, you add the cost of additions and improvements to the basis of your property (such as additions of new bedroom/New roof/ New Heating systems/ Central air conditioning /Furnace).
The following settlement fees and closing costs for buying the property are part of your basis in the property: Abstract fees - Charges for installing utility services - Legal fees - Recording fees – Surveys - Transfer taxes - Title insurance - Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
Regarding the repairs and improvements made when you rented out:
Generally, an expense for repairing or maintaining your rental property may be deducted if you aren’t required to capitalize the expense. The repair you made during the time your rented out should be reported and deducted from rental income on schedule E in the year the repairs was made. Therefore, you cannot add to basis of property.
You can add improvements to the basis of rental property. However, you are required to capitalize any expense you pay to improve your rental property. The expenses you capitalize for improvements can generally be depreciated over a recovery period of 27.5 years using the straight-line method of depreciation (the same class of property as the residential rental property to which they're attached) and reported on schedule E. You will need to subtract the depreciation took from the improvements when calculating capital gain/loss from sale of rental property.
Gain or Loss from Sales of property = Gross proceed from sale – Sale related expenses – (Original cost + Purchase expenses + Improvements) - Depreciation allowed or allowable.
Hope this help you out.
Tax Research Specialist.
The Tax Institute at H&R Block.