sale of rental

[Super Mom]

I have 2 different people asking me about sale of rental houses, they rented them and did work on them in 2015, but wondering if should hold work receipts for the sale of the house in the near future?? I'm thinking no right off, but not had a chance to research a lot yet. Anyone have experience and knowledge right off the top of your head, that would be great. I will do the research, don't waste your time, just tell me right off the top of your head if you know anything about this. Thanks!!!!!!

[Super Mom]

as of yet, not understanding the "additional depreciation" but right off thinking not depreciating would not help because is depreciation allowed or allowable. It seems I read something about straight line not applying???????

[taxmom34]

I think more information is needed, I am a bit confused about what you are asking. did client purchase a home in 2015 , that he intends to rent out in 2016? and he had to make major improvements before it was eligible to be rented? if that is the case I would add the improvements to the cost for a basis for depreciation or you could depreciate separately cost & improvements.
this is my take on your post if not, please clarify.

[Super Mom]

I think more information is needed, I am a bit confused about what you are asking. did client purchase a home in 2015 , that he intends to rent out in 2016? and he had to make major improvements before it was eligible to be rented? if that is the case I would add the improvements to the cost for a basis for depreciation or you could depreciate separately cost & improvements.
this is my take on your post if not, please clarify.

No they rented the house in 2015, they made major improvements in 2015 with the plans to sell the house in the near future.

[taxmom34]

re reading your post, are you asking about someone who has rental property that will be sold in 2016 or was sold in 2015?

[Super Mom]

So far, I have found this in my research from IRS pub 527:

"Deducting vs. capitalizing costs. Do not add to your basis costs you can deduct as current expenses. However, there are certain costs you can choose either to deduct or to capitalize. If you capitalize these costs, include them in your basis. If you deduct them, do not include them in your basis.
The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. "


I'm assuming that means the real estate taxes and mortgage interest that I would normally deduct from the rental income. So we could not deduct that and reduce basis with that?????

I'm still trying to figure out the deprecation and "additional depreciation" stuff. I'm assuming they can choose to keep improvements that would normally be depreciated as expenses to reduce basis instead of deducting????

[Super Mom]

re reading your post, are you asking about someone who has rental property that will be sold in 2016 or was sold in 2015?

No, the rental property was not sold in 2015. It may be sold in 2016.

[Super Mom]

No, the rental property was not sold in 2015. It may be sold in 2016.

They just don't really want to show any rental costs for 2015 that can reduce their income for 2016 on the sale of the rental property. I on the other hand, want to show any costs that won't help them in 2016.

[Super Mom]

They just don't really want to show any rental costs for 2015 that can reduce their income for 2016 on the sale of the rental property. I on the other hand, want to show any costs that won't help them in 2016.

I think I've determined what costs can be deducted for 2015 and what can be capitalized for 2016 adjustment to basis. However, I am still foggy on depreciation.

[MAMalody]

I don't deal very much with rentals, however, here is what I would do. I would tell it like it is. What happens in 2015 is generally handled in 2015. Rental income and expenses in 2015 would be on 2015 tax return. Any addition to basis in 2015 would be added and depreciated as per schedule. When 2016 hits, if they sold it, then handle the sale. If not sold continue on with rental/depreciation schedule. Remember depreciation is allowed or allowable, so if it is allowed in 2015 and you don't take it and there is a sale in 2016, you still have to consider that the depreciation was taken in 2015. Just my read. Since I don't generally handle these, my niche is clergy taxes, I am open to correction and instruction.

[TaxGuyBill]

I'm a bit fuzzy about the whole situation, but here are a few thoughts:

If it is a rental property (including being available for rent) and some improvements were "place in service" in 2015, you must start depreciation them. If it was no longer a rental property (and not available for rent) when the improvements were made, then you probably can ignore depreciation. If that is the case, post back and we'll figure out the next step about other expenses.

Ignore anything that says "additional depreciation". Except for things like Leasehold Improvements, Qualified Restaurant Property, and Qualified Retail Improvement Property, "additional depreciation" does not exist anymore.


That that help at all?

[TAX4US]

A quick reply. If cash basis tp what ever happened in 2015 gets handled one way or the other. Capitalized or expensed out. My 2cents on a quick think.

[taxea]

How soon will the work be completed. Will the rental be listed for sale as soon as the work is completed? A reasonable amount of time to be able to put the expenses into cost of sale would be listing immediately and probably within six months of completion of the work. The home sale worksheet will walk you through what is basis and what is expense of sale.
The rental should be taken out of service on the 2015 return on the date it stopped renting. Depending on date the rental stopped you would property tax and mortgage interest between rental expenses and Sch A.