Depreciation Recapture On a 100% Rental Property

[borinquenfs]

I purchased my rental property on 11/01/2010 for $97,000 and entered this information in the Asset Entry Worksheet on 02/10/2011 when I began depreciating the property 27.5 years.  I sold the rental property on 06/10/2019 for $145,000.  I had $23,000 in improvements and cost to purchase and sell the house were $7000.  When filing my taxes this year do I change the Cost Basis in the Asset Entry worksheet to $127,000 so the correct amount of taxes are deducted?  

[mdtao31]

did you report the improvments every year until sale? if you did basis is original purchase price plus

deprcation used

[Just-Lisa-Now-]

Your improvements should have been included as assets and depreciated over the years as well....or did you just expense those in the year you did them?

Can you confirm that you are using ProSeries Basic?

[borinquenfs]

I just expense them.  Did not depreciate the improvements.

[borinquenfs]

Yes, I am using ProsSeries Basic.

[Just-Lisa-Now-]

They should have been depreciated and added to basis then subject to recapture at sale.  I dont think you get to add them back to the basis now otherwise youd be deducting them twice with no recapture. 

The Sch E worksheet near the top should have a Box H  to check as the property is being disposed.

Use the rental Asset Entry worksheet for the disposal.  Scroll down the page to the disposal section, you can put in the date, the sales amount and the sales expense figure.   

[borinquenfs]

Thanks Lisa.

[borinquenfs]

As long as I deduct the total depreciation amount from the Cost Basis then I should be able to add the improvements, purchase/sales fees, commissions on the sale?

[Just-Lisa-Now- · Accepted solution]

Improvements SHOULD have been added as assets (and added to basis) in the year they occurred and depreciated, taking a small amount of their worth each year, then when you sell, the improvements would already be included in basis, and the accumulated depreciation that had already been deducted would be recaptured.

Since you didnt do that, you got the full amount of deduction for them already and you would NOT add them back to basis (reduce the sale price) now.

[borinquenfs]

Thank Lisa.  🙂

[Babak]

 What if improvements happened in the last year right before selling the property?

[dkh]

Enter the improvements as a new asset for date completed then sell off with the rental property

or if the improvements were done in order to sell the property - I would enter as Expense of sale on the Asset Entry Worksheet for the rental property