Can I get tax deduction on the repair amount $35,000 that I credit or give to Opendoor realestate company?

[tuanngnttax]

I sold a house to Opendoor and on the closing statement, I have to credit or give $35,000 to Opendoor for the future repair of that house.  It is part of the deal.  Can I deduct this amount on my tax return 2022? 

[Critter-3]

This is a repair and is treated just like any other repair even though you used the funds at sale to pay off the contractor.  Repairs to a home are not deductible unless they are considered  improvements then that is added to the cost basis of the home. 

The general principle is that a repair maintains the property in as-is condition or restores it to as-was condition, while an improvement (a betterment) makes the property more valuable or extends the useful life of the building or its sub-systems.  The improvement must be a permanent part of the structure (attached to or part of the house).

Paint and wallpaper is a repair, not an improvement.  I would say the same about refinishing the floors (as opposed to installing a new floor which is an improvement).

Buying new appliances isn't either a repair or improvement unless they are built-ins.

Remodeling is generally an improvement, and if you do things like painting as part of the remodeling, you count them as part of the improvement cost, you don't have to count them separately as a repair.  However, the dehumidifier is not an improvement unless it is permanently attached to or built in to the home.

[Carl]

I sold a house to Opendoor and on the closing statement, I have to credit or give $35,000 to Opendoor for the future repair of that house. It is part of the deal. Can I deduct this amount on my tax return 2022?

Depending on how things are setup/worded, it seems rather simple to me.  It sounds to me like you would just reduce your sales price by $35K.

[TomD8]

To put it another way, a seller repair credit is not a deductible expense.  The IRS regards it as a reduction in the net gain of the home, thus reducing the capital gain tax the seller might have to pay.

[Anonymous_]

I agree. This should either be a reduction in gross proceeds or a selling expense.

[tuanngnttax]

Ok here is how my selling transaction to Opendoor company.

 - Gross proceeds (report to IRS): $251,000

- Service charge or fee from Opendoor: $12,500

- Closing fee: $2500

- Repair cost (credit to Opendoor): $35,000

- Net proceeds (take home): $201,000

I believe that I can deduct the amount of "service charge" and "closing fee" from the gross proceeds; but not the repair cost of $35,000.  Is this correct?  Opendoor wrote "Repair cost" on the closing statement; so it can not be treated as an improvement.

[tuanngnttax]

As you see, the title company reported $251,000 in 1099-S form to IRS; so if I can't deduct the repair cost of $35k, then I have to pay tax on it.  Is this correct?

[Carl]

As you see, the title company reported $251,000 in 1099-S form to IRS; so if I can't deduct the repair cost of $35k,

Wait for another to confirm, but I do believe you claim it as a selling expense, since it was a condition of the sale.

[Anonymous_]

I agree. 

I would report the entire gross proceeds (as per the 1099-S) and then enter the $35,000 as a selling expense.

[tuanngnttax]

I wish but according to IRS rule, any home repair can't be tax deductible unless it is an improvement to the home; but in special case of selling the home, the IRS allow you to deduct any repair or improvement but the repair or improvement has to have been done 90 days before your closing date.  In my case, at the closing date I have to credit or give $35k to Opendoor for them to repair the house in the future.  I believe this is a tough answer.  Are you all accountants or CPA?

[TomD8 · Accepted solution]

I agree with @Carl and @Anonymous_.  The repair credit is a sales expense and can be subtracted from your gross proceeds when you calculate your capital gain.

You might find this web reference useful.

https://www.nolo.com/legal-encyclopedia/when-home-sellers-can-reduce-capital-gains-tax-using-expense...

I am not a CPA or accountant.  This is a TurboTax users' forum.  I can tell you that most of the users who answer questions on this forum have been doing so for several years and are quite knowledgeable about income tax issues.

[tuanngnttax]

So in my case, I can deduct all $50,000 for sale expenses (service charge fee = $12.5k, closing fee = $2.5k, and repair cost = $35k) from the gross proceed?  I thank you all for the awesome replies.

[Mike9241]

opendoor is playing games with you to their benefit. they could easily have stated the sales price as $216,000.  however, in this case, the $35K for repairs would exceed the de minimus amount which means it could face audit issues if it reported this as an expense.

while how yo refer to it makes me think this is not your principal residence. if it was it may not even matter if you have lived in and owned the property for any 2 years in any of the 5 years before the sale you're entitled to a $250,000 exclusion. so the sale may be tax-free regardless of whether you include the $35K in repairs as part of the cost or sales price.  even if you don't meet both 2-year tests, under certain conditions a partial exclusion may be available.

In other words, this whole discussion may be moot.

[Anonymous_]

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@Mike9241 wrote:

....the $35K for repairs would exceed the de minimus amount which means it could face audit issues if it reported this as an expense.

---

That may be the case but, frankly, who cares? 

If audited, all that would be required is to simply remit a copy of the closing statement to the IRS.

[tuanngnttax]

Yes, I agree with you.  I believe they do this to benefit on their side and who knows they might claim that repair amount on their tax because it was all for business expenses.  This home is my second home; so $250k profit limit didn't apply to this home.