My parents put their house in my name thru a life estate in 2002. I paid for some updates (kitchen remodel 2012, roof 2008) while my father was still living there. He passed away in 2013 so I know my cost basis shifts to value at his death. I replaced the HVAC (central air and gas furnace) and sold the house last year. It was not my primary residence so I know I will pay cap gains on the sale. I am wondering if I can deduct the cost of the improvements that I made with the roof, kitchen and HVAC from the cap gains taxes.
You can't include the cost of those improvements before your father died because you didn't own the house. You had a remainder interest not full ownership. You can use the FMV on the date of your father's death as your basis though which might give you a better result. Of course you can include the improvements you made in your basis AFTER you became owner of the property......when the life estate ended.
No, you can't deduct the cost of the Improvements you made, but you can add them to the Cost Basis of the home, which will reduce taxable capital gains.
Here's more info on How Capital Gains are Taxed.
You don't mention whether your mother has passed; calculations of the property's Cost Basis may differ if so.
Here's more discussion of Cost Basis of Life Estate Property.
Thank you so much for the reply. My mother passed away before my father, so I am using the city assessment done the month and year that he passed as the cost basis. I was unaware that improvements were not deductions but instead to be added to the cost basis - but that makes sense. Does it matter that some of the updates to the property were paid for a few months before he died? Or am I ok to include those since I have the receipts for the work and the house was technically in my name? This is very helpful - thanks again!
You can't include the cost of those improvements before your father died because you didn't own the house. You had a remainder interest not full ownership. You can use the FMV on the date of your father's death as your basis though which might give you a better result. Of course you can include the improvements you made in your basis AFTER you became owner of the property......when the life estate ended.