Can I deduct sale preparation expenses when selling an asset (boat)? For instance, painted the bottom ($2,000) to get it ready to sell?

[LadyHawk52]

The asset (boat) was used for our charter business which we closed.  We have to recapture depreciation taken, etc. since we did sell at a profit.  But we spent considerable funds getting the boat ready to sell.  We know the sales commission affects the cost basis, but what about other expenses to ready it for sale?

[DoninGA]

Maintenance and repair costs are not added to the basis of an asset so are not used in determining the gain or loss on the sale of the asset.

[LadyHawk52]

Thank you, but we know the expenses are not considered for the cost basis.  Our question was whether the expenses incurred to close the sale are part of the expenses we can claim.  The buyer wanted some items fixed before he would close, so we incurred approx. $3,000 to do them.  Prior to listing the boat, we had also pulled it out of the water and had the bottom painted for approx $2,000.  Are these considered the cost of selling boat?  If so, how do we enter them in TT?

[DoninGA]

Fix-up expenses (repairs) have not been deductible as selling expenses (or allowed to be added to basis) since Taxpayer Relief Act of 1997 was passed.

[DoninGA]

But, you may be able to claim those expenses as a business expense on your business entity tax return or your Schedule C as a sole proprietor.

@Critter-3  @Anonymous_ 

[Critter-3]

The fix up costs completed before the asset is placed up for sale  are deducted by your business on the business return form as repairs.     The cost of sale (including any required fixes per the contract) are used in the sale of the asset computation form 4797.  

[LadyHawk52]

You stated, "The cost of sale (including any required fixes per the contract) are used in the sale of the asset computation form 4797."  We had a signed contract/price with the buyer, contingent upon the boat survey.  After the survey, the buyer and we signed an amendment to the original contract requiring we "fix" several items to close the sale.  The cost of "fixing" these items was a few thousand dollars.  So would we enter these costs on  Line 21?  It really comes down to does the IRS consider these additional costs required to to close the sale as "expense of sale," or does the IRS consider these as nondeductible repairs/preparation for sale?

Thanks for your help.

[Critter-3]

They are deductible no matter where you put them however since this was a contingent of the contract of sale I would add them to the cost of sale.  In the end the bottom line will be the same ... just keep excellent records for the next 7 years just in case you get audited.