Sale of Investment Property

[Yardley CPA]

As the Fall season gets into full swing, we'll be nearing another tax season in no time.  Hope everyone is doing well.

MFJ Client purchased an investment property many years ago and continued to rehab it in the hopes of putting it up for rent.  That never happened and now the client is selling the property.  I believe the expenses associated with rehabbing the home can be added to the basis.  The home was never included on a Schedule E and was never depreciated as it was never ready to rent.  Would the sale be handled on Schedule D as a long-term capital gain / loss?  Would appreciate any information you can share.  

Thank you. 

[jklcpa]

Yes, the sale of investment property is reported on Schedule D.  If there is some considerable improvement within the last 12 months, that portion would be short-term, but generally speaking, most or all of the transaction is probably going to be long-term. I have some old case law that I could dig out on the issue of short-term reporting if that is needed.

The expenditures for the rehab of the home are part of basis, and depending on the type of any other charges incurred that were associated with the property and how they were handled or ignored, some of those carrying charges might also be included in basis if an election was made to do so. You can read more about that here:  https://www.law.cornell.edu/cfr/text/26/1.266-1