No records to document adjustments to basis

[user17524923356]

I am planning to sell a home I’ve owned for more than 30 years.  For a number of those years when I was living overseas, more than 20 years ago, I rented the house to tenants and claimed depreciation.  I do not have records to document how much depreciation was claimed during those years.  Also, I did a major renovation to the house about 15 years ago but can’t find the records to document those costs.  How can I figure the basis for this asset to calculate the taxable gain?  Thank you. 

[mmaherTE]

You will need to figure the basis and the depreciation to accurately record the sale of this rental property.  

Your prior tax returns tell the depreciation story.  Go to the IRS, www.irs.gov,  scroll down slightly to find the heading Tools and Applications,  click the blue arrow to move through the list, on the box labeled your account click the link to go to your account, from there you'll be able to set up your taxpayer account.  You will find your tax records in your account.   

Other resources are the country website where the home is located.  You will need to contact them directly for the sale records due to the age but if you make a request they should be able to get them to you. You will need what you paid for the property broken into the land portion and the improvement portion. 

Other records you'll just have to do your best to find or piece together.  If you absolutely can not find a record I would advise leaving that information out.   

[dev145 · Accepted solution]

Let's start with easy question first. For renovations, You can use an estimate if you cannot find any info. at all. Do you have kind of documents? How was it paid? Bank or credit card or may be home equity loan? May be you know/remember the contractor who did the work and they can provide the info.

As for the deprecation, do you remember the cost basis you entered to calculate the deprecation? How many years the property was rented? I am assuming you have a purchase price of the home. Generally depreciation is calculated based on the lower of purchase price or FMV (Fair Market Value) of the property when placed in service. If the price of the property increased when you started renting, you can use purchase price and calculate depreciation for those years. I am not saying that it will match with what you claimed but it will at least help you. 

IRS online transcript only goes back 3 years and up to 10 years if request by mail and request to get a copy of tax return only covers 7 years so contacting IRS is not available. 

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[SwapnaM]

Your Adjusted Basis will be: Original Cost + Capital Improvements - Depreciation.

For the Original Cost: You will have to look at closing Documents or property tax records for the purchase price.

Capital Improvements: You can increase your basis by the cost of major renovations (e.g., kitchen remodels, new roof, room additions). Since you don’t have receipts, the IRS allows you to reconstruct estimates using:

• Old bank or credit card statements
• Permits or contractor records
• Photos with timestamps
• Insurance records
• Affidavits or written statements from contractors

Depreciation from Prior Tax Returns (Form 4506-T): This is your best first step. You can request tax transcripts from the IRS for past years. You can go back quite a few years, though there might be a limit. You will have to look at the Form 1040, SCH E, Form 4562 for depreciation details, Form 8582 for passive activity losses for details about the rental.

If you don’t have records:

• Estimate the rental period 
• Estimate the value of the building only (not land) at the time it was placed in service.
• Use the IRS depreciation schedule (typically 27.5 years for residential rental property)

This does sound like a challenging situation with rental use, personal use & missing records. Hope this helps!!

@user17524923356 Thanks for the question!!

[pk]

@user17524923356  while I absolutely agree with the excellent reply and pointers from my esteemed colleagues @mmaherTE , @dev145  and @SwapnaM , I am still down to basics :

(a) you said you have owned the prop for 30 years ( +/- ) 

(b) you said that while your were abroad ( 20 years or so ) you rented out the prop and hence probably had depreciation for at least  that length of time -- need the real numbers here i.e. when did you buy the prop, for how much, depreciable basis ( i.e. purchase price LESS  approx. land cost ),  when did you start renting out,  when did you stop renting etc. 

(c) You said you made major improvements about 15 years ago -- should  one assume that this is the time  when you stopped renting out the prop?

(d) How did you use the prop. after you came back to the USA -- did you stop renting out and use it as your main residence  or what ?  I ask because if the prop was used as your main home then gains beyond the  accumulated depreciation is eligible for exclusion as primary home up to a maximum based on your filing status. Additionally if one of the owners had passed there is the step-up basis to contend with.

AS you can see there are few unknowns -- we need to know these before one can answer your question  tuned to your specific  situation.

Is there more one of us can do for you ?

[user17524923356]

Thanks.  I have been living in the home as my principal residence and know about the exclusion for selling an owner occupied home.  But the gain will be much more than that and my main concern is the lack of records to document depreciation claimed more than 20 years ago when the property was rented out.   If I understand a previous answer correctly, I can only get copies of old tax returns from the IRS for the last 10 years, so that won’t help me out.  I suppose what I’m left with is trying to estimate what the depreciation should have been since I do know the original basis, and I suppose it would have been depreciated over 27 years.  Regarding the major renovations that were done about 15 years ago, and yes, that is when I moved back into the house, again I suppose the best I can do is guess at an estimate, if I can’t come up with any records.  The renovations were paid by check, and I can see if my bank would have records of the canceled checks going back that far, but I’m really not sure.  Thanks for the follow up.  

[JotikaT2]

Thank you for joining us in the event today.

@user17524923356