Estimating cost of home improvements for capital gains tax

[roobarb]

Hello Experts,

My question is in regards to estimating the cost of home improvements for calculating the capital gains tax if the original receipts for the upgrades are not available. 

My situation:

- Home bought in 1999

- Lived there until 2016. Added deck, hardwood floors, upgraded kitchen, bathrooms, etc.

- Moved in 2016 and rented out the property.

- Sold in 2021.

Unfortunately we tossed the receipts from the upgrade projects when we moved so they are not available.

To estimate the cost of all the upgrades, could we use a real estate appraiser?

Thanks in advance!

[PatriciaV]

No, it's unlikely that a real estate appraiser would know the cost of materials and labor for improvements made in the past (an appraiser provides an estimate of market value, not cost basis). A construction contractor may be able to assist, depending on when those improvements were made. Without the evidence of receipts or a professional opinion in writing, you would not have sufficient proof of those costs. If you're unable to produce sufficient proof, your basis in those improvements would be zero. 

Have you been reporting & depreciating this rental property since 2016? If so, your tax records should show the cost basis that has been depreciated. If not, you have not fully reported your rental activity. In this situation, you may wish to obtain the help of a local tax expert who can advise you properly.