Prior Rental expenses to sell

[GTS1101]

I have a client who rented a home out they owned two years ago. They moved back in to live there for two years so that they wouldn't be hit with the capital gains tax when they sell the property. They have been unable to sell the property. While they were living in the home this last year they spent about 15,000 remodeling the kitchen bathrooms, painting, and other repairs to get ready to sell. My thought is that the money they spent would be added to the basis when they finally sell the property. Any suggestions or am I correct. Could they somehow write off as rental expenses if the house doesn't sell and they rent it out again in about four months?

Thanks!

GTS11101

[JG EA]

That would be my thought as well. It was not up for rent and so not a rental. Basis if they sell as their home, depreciable basis if they turn back into a rental.

[Y2KEA]

Doing a cocktail napkin analysis of this scenario:
Improvements are added to adjusted basis. If sold after 2 years occupancy, take sec 121 exclusion & recapture depreciation allowed or allowable during rental period.

If re-rented, improvements depreciated over 27.5 years (assuming no cost segregation). I would also think that when placed into service again (since it was taken out for purposes of no longer being a residential rental), depreciable basis of property is FMV or adjusted basis whichever is less. FMV may be less if the housing market in that area is as volatile as some of my local markets. Still a factor to consider.

This all of course, assuming there is actually a capital gain. You don't say how long they have actually owned the property or where it is located. Around here, if you bought 2 years ago, it was near the peak. Today it is on the other side of the peak & about the same original value (if that).

Anybody else have some thoughts on this?