Yes, you are correct that you cannot use the expenses until you sell the property. If any improvements or repairs were necessary to sell the house, those expenses can be added to the basis. The basis will be deducted from the proceeds of the house when you sell it in 2023.
To qualify as an increase in the adjusted basis when you sell, the home improvement must:
- Add materially to the value of your home; or
- Prolong your home's useful life significantly; or
- Adapt your home to new uses
Here are some examples of improvements:
- Remodels and room additions (including decks and porches)
- New or upgraded landscaping, irrigation, and sprinkler system
- Hardscapes such as pavement, block or retaining wall, patio
- Fencing
- Storm windows, doors
- New roof
- Upgraded wiring, plumbing, and ductwork
- Central heating, AC, humidifier
- New furnace, water heater
- Filtration, soft-water, or septic system
- Built-in appliances
- New flooring or wall-to-wall carpeting
- Upgraded insulation
And some expenses that are listed on the settlement statement can be added to the basis. These include:
- Title fees
- real estate commissions
- documentary stamps
- credit report costs
- costs of an abstract
- transfer taxes
- home inspection
- flood certificate
- attorney fees, etc.
Since you are not in the business of flipping houses, this would be considered a one-time investment that is reported on Schedule D as investment income along with other forms needed for a seller-financed mortgage.
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