Are all improvements that I made to my home during the the time that I owned it counted to determine the adjusted cost basis or do I just those made for the tax year?

[TinkerBell01]

Can I only count improvements made to my home in the tax year that I sold it? Also, does it matter that I already included some of the improvements as a rental expense for the tax year that I began renting out part of my home? I stopped renting out part of my home in 2017.

[NCperson]

all the improvements since you purchased the house are added to the cost basis in the year of sale....

a few exceptions

- you can't 'double dip' - if you expensed some of the items while the properrty was rented, you can't also add it to the cost basis. 

- another form of double dipping, for example, is you owned the home long enough that you replaced the roof twice... you can't add both times to the cost basis. 

[TinkerBell01]

Thanks so much for your thorough answer! You actually answered another question I had about  replacing the roof twice because I did replace it twice. I had expected that you could only count the latest replacement.

[Opus 17]

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@TinkerBell01 wrote:

Thanks so much for your thorough answer! You actually answered another question I had about  replacing the roof twice because I did replace it twice. I had expected that you could only count the latest replacement.

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Correct, you include permanent improvements that are still part of the property.

Also, regarding double-dipping.  It depends on whether you expensed or depreciated the expense.  You generally have to depreciate improvements, meaning you add it to the cost basis and then depreciate it yearly.  If you took an expense safe harbor, you can't count that towards your cost basis, but if you added it to your cost basis and began taking depreciation, that does add to your cost basis (as well as creating depreciation recapture). 

[TinkerBell01]

Thanks for the further explanation. I'm not sure which way I did the expense (expensed or depreciated). Where can I find this out on my tax return for the year I included the addition/improvement (I added a bathroom and closet)? Also, I bought some storm doors in 2009 and got a nonbusiness property credit for that tax year return. To use them again would be double-dipping correct?

[Opus 17]

Yes, the information should be on your tax return for the years in question.  Regarding the windows, they still count as improvements but you have to reduce their cost by the amount of the tax credit.  

[NCperson]

and by the way, if your gain is less than $250,000 (single) or $500,000 (joint), before tracking down all the improvements since your purchased the home, there is no capital gains tax to pay in any event. 

[TinkerBell01]

Thanks! I sold my home for 285,000.00 and bought it for $147,000.00.

[NCperson · Accepted solution]

so I wouldn't waste by time trying to figure out all the improvements.  The gain is less than $250,000 so there is no capital gains tax at all.  

p.s. and that assumes you lived in it for at least 2 of the last 5 years..... to get the tax free treatment, 

[TinkerBell01]

Thanks so much again - you saved me from wasting anymore unnecessary time.

[TinkerBell01]

Why is TurboTax indicating that I have a taxable gain of $8,584.00 (which is the amount of my depreciations) when I bought my home for $147,000 and sold it for $285,000.00. The gain is less than $250,000.00? I rented out part of my home during the years of 2015-2017. Does that make a difference?

[VolvoGirl]

Yes you have to recapture the depreciation.  

See Publication 544 on Sale of Assets page 27 

http://www.irs.gov/pub/irs-pdf/p544.pdf

[Opus 17]

Because you previously benefitted from the deduction of the depreciation, and you are now recovering the deprecation through the sale, it is taxable income. 

[TinkerBell01]

When figuring the depreciation, do I add up the amount of the depreciation on my tax returns for each year up until the current tax filing year? I had depreciation because I rented out part of my home from part of 2015 - part of 2017.

[DMarkM1]

Yes you would add all the depreciation for the rental years to reduce your cost basis.