@artboy56 wrote:
It was their mothers house. Left to them in trust. After a whole house inspection needed repairs were noted that would bring the house back. New septic system, roof repairs, wood rot and yard sprinkler issues. For over a year repairs were made and the sisters paid utilities and insurance.
the house was sold and money was divided equally.
question is can they both claim half of the repair bills on their own taxes. They are not filling jointly.
thank you for your expertise
Once again, you have to separate improvements from repairs. See the definition above.
Repairs are not deductible or adjustments to anything, they are just part of responsible home ownership. Improvements add to the cost basis. A new septic system would be an improvement. Wood rot, sprinkler issues and roof repairs are too non-specific, they might be repairs or improvements, depending on the intention and scope of the work. They need to determine that themselves. Please read publication 523.
https://www.irs.gov/forms-pubs/about-publication-523
You need to start with the fair market value on the date the previous owner died. That may require a real estate appraisal if you did not get one 2 years ago. (An appraiser can make a retroactive appraisal, but be sure to let them know the condition of the property at the time so it is fair.) Suppose the fair market value was $200,000. Each half-owner has a basis of $100,000. Then, suppose that of all the costs that were paid, the improvements totaled $50,000. That's $25,000 per owner, so each owner now has a basis of $125,000.
Then suppose the home sells for $300,000. You can subtract the real estate commission, so your proceeds might be $284,000. That's $142,000 per owner. On each owner's tax return, they list the sale of an asset ("other property"--don't use "sale of my home" unless they lived there as their main for home for at least 2 years of the past 5 years.) With a proceeds of $142,000 and adjusted basis of $125,000 in this example, each sister has a taxable capital gain of $17,000.
The more items you can add to the basis, the less taxable profit they will have. But you can only add improvements, and certain closing costs listed in publication 523. You can't include repairs, or utilities, or other carrying costs they might have had during the time they were fixing it up.
And yes, if they own equal shares, they each get a basis adjustment for half the cost of improvements, even if there is only one bill. (They should each keep a copy of everything in case of audit.)
