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Costs deductible for capital gain on second home build

Hello, I built a second home starting in 2019, completed Nov 2021, and sold June 2023.  I've calculated capital gains, reducing for all the traditional costs of sale commissions, title and other closing costs, etc.  However what's unique about this case is the home was built in AZ over 2+year period, while my main home was in TX, therefore I was traveling back and forth over that period to have ongoing meets with the builder as the home construction progressed.  My question is would the travel costs (mileage, meals, hotels, etc.) associated with those builder meets be deductible against the sales proceeds?  Thanks. 

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9 Replies

Costs deductible for capital gain on second home build

My question is would the travel costs (mileage, meals, hotels, etc.) associated with those builder meets be deductible against the sales proceeds?   Sorry no.  

Costs deductible for capital gain on second home build


@Critter-3 wrote:

My question is would the travel costs (mileage, meals, hotels, etc.) associated with those builder meets be deductible against the sales proceeds?   Sorry no.  


Allowable adjustments to basis are listed here.

https://www.irs.gov/forms-pubs/about-publication-523

Costs deductible for capital gain on second home build

Thanks for the responses here.  Prior to posting my question, I had an online chat with an Intuit Turbotax tax expert, with 20 years experience.  Her advice was that the travel expenses for builder meets were deductible (or adding to basis).  I posted the question here hoping to get comments confirming this.  I think this is another example of how convoluted the tax code is, easily subject to multiple interpretations of the same issue. 

 

I think I'll try another professional source or two to see if I can get some more opinions in one direction or another. 

Costs deductible for capital gain on second home build


@BillyCrash wrote:

I think I'll try another professional source or two to see if I can get some more opinions in one direction or another. 


Have you read the relevant section of Publication 523?

 

Publication 523 (2022), Selling Your Home | Internal Revenue Service (irs.gov)

 

IRS publications are not really authoritative, but it should at least give you a sense that the likely answer is travel expenses are not added to your basis (or are otherwise deductible) in this instance.

Costs deductible for capital gain on second home build


@BillyCrash wrote:

Thanks for the responses here.  Prior to posting my question, I had an online chat with an Intuit Turbotax tax expert, with 20 years experience.  Her advice was that the travel expenses for builder meets were deductible (or adding to basis).  I posted the question here hoping to get comments confirming this.  I think this is another example of how convoluted the tax code is, easily subject to multiple interpretations of the same issue. 

 

I think I'll try another professional source or two to see if I can get some more opinions in one direction or another. 


Publication 551 fully describes how basis for assets is determined.

https://www.irs.gov/forms-pubs/about-publication-551

 

If the Turbotax expert can find something in the regulations or tax code that goes beyond the publication, ask them for the citation.  Alternatively, ask the Turbotax expert if they will defend you in tax court if you are audited.  If not, find your own expert who will defend you in court. 

Costs deductible for capital gain on second home build

In publication 551 it states the following:

Construction.

If you contracted to have your house built on the land you own, your basis is:

  • The cost of the land, plus

  • The amount it cost you to complete the house, including....

It could be argued that the builder meets were required to complete the house since in-person discussions on options, changes, materials, design and a host of other issues were needed, and the travel costs were incurred to allow the meets to happen since the build state was not my primary home state. 

I will be seeking additional guidance as you suggested. 

Thanks.

Costs deductible for capital gain on second home build


@BillyCrash wrote:

In publication 551 it states the following:

Construction.

If you contracted to have your house built on the land you own, your basis is:

  • The cost of the land, plus

  • The amount it cost you to complete the house, including....

It could be argued that the builder meets were required to complete the house since in-person discussions on options, changes, materials, design and a host of other issues were needed, and the travel costs were incurred to allow the meets to happen since the build state was not my primary home state. 

I will be seeking additional guidance as you suggested. 

Thanks.


You altered the quote and cut off the part that applies to you.  Good luck. 

 

Constructing assets.

If you build property or have assets built for you, your expenses for this construction are part of your basis. Some of these expenses include the following costs.

  • Land.

  • Labor and materials.

  • Architect's fees.

  • Building permit charges.

  • Payments to contractors.

  • Payments for rental equipment.

  • Inspection fees.

In addition, if you own a business and use your employees, material, and equipment to build an asset, don't deduct the following expenses. You must include them in the asset's basis.

  • Employee wages paid for the construction work, reduced by any employment credits allowed.

  • Depreciation on equipment you own while it's used in the construction.

  • Operating and maintenance costs for equipment used in the construction.

  • The cost of business supplies and materials used in the construction.

Don't include the value of your own labor, or any other labor you didn't pay for, in the basis of any property you construct.

Costs deductible for capital gain on second home build


@BillyCrash wrote:

....It could be argued that the builder meets were required to complete the house since in-person discussions....


Anything "could be argued" and it could be argued that the "builder meets" to discuss options could have been effected other than in-person. Good luck.

Carl
Level 15

Costs deductible for capital gain on second home build

I think this is another example of how convoluted the tax code is, easily subject to multiple interpretations of the same issue.

It seems to me to be rather clear in IRS Publication 523, and this thread could be interpreted as you looking for the answer you like, as opposed to the answer that is correct. No such accusation intended here. Just a caution to make you aware is all.

What is correct may depend on if you are "in the business" of building and selling properties.

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