Rental selling expenses in 2010 but will sell in 2011, tax effect?

You have to take the expenses for 2010. If your total rental income becomes negative because of the expenses, don't worry.

(a) If you actively participate in the rental activity you still claim

25k of rental loss against your other income. If your AGI is between 100k and 150k the rental loss is phased out, and if over 150k you can't take a rental loss. But any loss that you can't claim is carried forward to the next year, or when you dispose of the property.

(b) If your full time job is renting then you can always claim unlimited rental loss. Actually, it doesn't have to be full time, but you have to spend a certain number of hours. See

6825%2C00.html.

New bathroom is a capital expense and should be depreciated. I think the class life is 27.5 years, and section 1250 property. So when you sell there will be 2 line items on form 4797 -- one for the main house, one for the bathroom.

New windows is also a capital expense. I think 27.5 years and section

1250.

Painting is a current expense.

I'm confused by your answer. Don't the costs of the remodel get added to the basis of the property when the owner eventually sells it, thus reducing his capital gain?

I have an almost identical situation to Rick in PA. I spent about $50,000 last year in remodeling a rental house, including a completely new kitchen,

3 new bathrooms, new tile flooring throughout and a new porch and patio. The original house was fully depreciated before I remodeled it. The house did not sell in 2010 as I hoped, so I am renting it out again. The total rent received in 2010 was only $4500.

Am I correct in listing these improvements on the depreciation form as "improvements to rental house", with a value of $50,000? Or do they need to be described individually as new bathrooms, new floors, etc.?

The way you normally handle it is as a separate property. The reason to do it this way is because it has a different depreciation schedule. Say your main rental has a value of 200k (land and building), and the 100k of building is fully depreciated, and you add a new room for 20k, and sell one year later. Using the simple method actual cost is 200+20"0 minus depreciation of about 100+11k (assuming depreciation for one year on 20k is about 1k), so adjusted cost basis is 220-1019k. House sold for 250k so gain is

250-1191k. Using the long method, you have to depreciate the house on one line item, and the addition on another line item (so you will have about 1k depreciation). Then when you sell you list the gain on each property separately. Somehow you have to allocate the 250k sale price between the house and the addition. Suppose main house is 230, additional room is 20. So sale on main house is 230 minus (200 minus depreciation of 100), or 230-(200-100)0. On the additional room, sale is 20, adjusted cost is 20-1 as depreciation is 1k, so net gain is 1k. Then you add it all up and total gain is 130+11k.

But you have to handle the property separately because on the main house you have 10 more years of depreciation left, and on the new room you have 27.5 years. Or if you bought a fridge you have 5 years of depreciation on it. So it's just a paperwork thing. In the end, the profit is sale price minus adjusted cost basis minus fees.

I think you can list the entire new bathroom as one line item, as opposed to listing the windows, floors, tubs separately. This is because since all are attached to the main house, all of them have a depreciation life of 27.5 years. They all have the same depreciation schedule (ie. class life, number of years left, and depreciation method of straight line) so it makes no sense to list the items separately.

Hope this is clear.

I disagree with this. The above is applicable if the renovation were actually placed into service. However, as it is a fix-up for sale that is NOT being consumed while being used by an actual renter nor is it available for rent, it is an addition to the capital account that does NOT have depreciation running. Therefore, there is no deductible depreciation expense in 2010. It is solely a basis adjustment.

If the rental property had a capital improvement in 2010 that is normally depreciable for tax purposes and the property continued to be rented after that improvement, then the cost of that improvement is part of the depreciable base for 2010. The depreciation deduction for

2010 would be increased because of the capital improvement.

Although the house was empty while the OP worked on it, the relevant question is, was the house rented out after the OP finished working on it?

Isn't the question was the house available for rent? Say you tried to rent it but didn't find anyone, then the addition is still depreciable, right?

Right.

Good point.

For me, the original post implies that the house remains empty pending sale. That's certainly not rented, and I infer not available for rent either.

House was rented in January 2010. Tenants left and remodeling began in February which was completed in August. Home was listed for sale from August through November 2010. In November it was offered for rent and home was rented in December 2010. Shouldn't the remodeling costs be depreciable in

2010 then?

Given this additional info, depreciation for 1.5 months under the mid-month convention for the renovation should be allowed.