https://www.irs.gov/pub/irs-pdf/p523.pdf
When you sell a second home, you will owe capital gains tax on your gain, which is the difference between the selling price and your adjusted cost basis. Allowable adjustments to basis are listed in IRS publication 523.
Briefly, you can include the cost of permanent improvements but not repairs, along with some of your closing costs as described in publication 523. Repairs are not adjustments to basis because repairs are things that you are supposed to do as a property owner to keep the property in as is condition. Improvements are permanent changes that add value or extend the working life of the home or one of its systems. (Improvements are also sometimes referred to as betterments, because they make the property better rather than maintaining it as it is.) For example, painting the living room is a repair because it keeps the house in as-is condition and doesn’t materially increase its value, but replacing the carpet is an improvement, because it extends the useful life of the flooring system. You can only count improvements that are still a permanent part of the property. For example, if you bought the home in 2000 and replaced the carpet in 2001 and again in 2015, you can only include the cost of the second replacement, because it is the only improvement that is still part of the property.
painting the living room is a repair
Ummmmmm.... no. Or yes. Or Maybe. it's kinda weird really. Painting is generally a maintenance expense. Not a repair.
If you paint a room merely to paint it because maybe the walls are dirty, the color is outdated, or perhaps the old paint is peeling, its a maintenance expense. For a rental property the cost is included on line 7 of the SCH E.
If painting is "a part of" a repair, such as painting a wall after repairing a gaping hold in it, then the cost of painting is "a part of" the repair expense. For a rental property the cost goes on line 14 of the SCH E.
But of course, the point is, maintenance or repair expenses do not add to the cost basis and are not a sales expense on the sale of a personal use 2nd home.
@Carl wrote:
But of course, the point is, maintenance or repair expenses do not add to the cost basis and are not a sales expense on the sale of a personal use 2nd home.
I was assuming this was not a rental since that was not indicated.
Painting can also be part of an improvement--if you remodel the kitchen, that necessarily includes painting which is included in the cost of the remodel and does not have to be separated out. But the taxpayer didn't indicate any extensive remodeling either, so I didn't mention it.
If a rental, then many expenses can be deducted against the rental income that are not deductible for a personal dwelling.
2. Home improvements and repairs
If you renovated a few rooms to make your home more marketable (and so you could fetch a higher sales price), you can deduct those upgrade costs as well. This includes painting the house or repairing the roof or water heater. But there’s a catch, and it all boils down to timing. “If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing
So the costs may be deductible as a sales expense, depending on the timing. But typically, simple things like painting, replacing the glass in a broken window, etc, are either maintenance or repair expenses and are not deductible as such, nor do they add to the cost basis of the property.
@Mike9241 wrote:
2. Home improvements and repairs
If you renovated a few rooms to make your home more marketable (and so you could fetch a higher sales price), you can deduct those upgrade costs as well. This includes painting the house or repairing the roof or water heater. But there’s a catch, and it all boils down to timing. “If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing
No. You took a common quote from many real estate web sites and expanded it to cover situations that are not covered.
The quote is “If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing." This is true, but the key word is improvements. This quote says nothing about repairs. You added that yourself. And improvements are added to the cost basis no matter when they are made, not just within 90 days of the sale. (There is no actual difference between "adding improvements to the cost basis" and "deducting them from the sales price.")
In contrast, "fix up" expenses are specifically not part of the cost basis since 1997. See this article for example.
https://www.investopedia.com/terms/f/fixing-up-expenses.asp
See also here
https://turbotax.intuit.com/tax-tips/home-ownership/home-improvements-and-your-taxes/L6IwHGrx6
@Carl wrote:
So the costs may be deductible as a sales expense, depending on the timing. But typically, simple things like painting, replacing the glass in a broken window, etc, are either maintenance or repair expenses and are not deductible as such, nor do they add to the cost basis of the property.
Allowable sales expenses must not make changes to the home. For example, advertising. "Staging" is an allowable expense provided that when the stager takes away their goodies, the home is left as it was. If the stager says you need to paint, that's a repair that is not allowable as a cost basis adjustment.
Personally, I don't see where claiming it as a sales expense or adding it to the cost basis makes a penny of difference in the bottom line. But the IRS has their rules. (sigh!)
@Hal_Al wrote:
"Deduct Home Repairs and Improvements. As part of selling, you likely made post-home inspection repairs to your house. While it may have been disheartening to make those repairs at the time, you can deduct the costs on your taxes as long as they were directly related to the sale of your house."
Deduct as "expenses of sale" or add to your cost basis.
I don't believe the 90 day rule for "repairs" exist anywhere in IRS regulations, publication, tax court cases or PLs, despite the proliferation of the rule on real estate and tax advice web sites. I would like to see an actual IRS citation.
(I am not questioning improvements, no matter when made. I am specifically questioning repairs.)
@Opus 17 wrote:
@Hal_Al wrote:
"Deduct Home Repairs and Improvements. As part of selling, you likely made post-home inspection repairs to your house. While it may have been disheartening to make those repairs at the time, you can deduct the costs on your taxes as long as they were directly related to the sale of your house."
Deduct as "expenses of sale" or add to your cost basis.
I don't believe the 90 day rule for "repairs" exist anywhere in IRS regulations, publication, tax court cases or PLs, despite the proliferation of the rule on real estate and tax advice web sites. I would like to see an actual IRS citation.
(I am not questioning improvements, no matter when made. I am specifically questioning repairs.)
I wanted to edit my comment to add this, but I can't seem to edit so I have to double post.
This was previously discussed here to no good conclusion, although again, no one claiming a 90 day rule can cite an IRS source.
This blog has no 90 day rule.
I see @AmyC weighed in last year, perhaps she has a new thought this year or can help us find an actual IRS source for the so-called 90 day rule for repairs.
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.
Clearly, there are those who have not kept current with changes in the Code and Regulations.
Hi Mike,
Can you please point me to where I can find the reference to the 90 day period for expenses to improve property to sell it? I can't find reference to it in the tax code.
thanks!
@louisebthacker wrote:
Hi Mike,
Can you please point me to where I can find the reference to the 90 day period for expenses to improve property to sell it? I can't find reference to it in the tax code.
thanks!
There is no such tax code. In fact, when I responded here before, I search the web and found the paragraph Mike posted is an exact quote from several real estate web sites, but not any tax sites.
In fact, some time ago I found a reliable tax site discussion that specifically excluded "fix-ups". This was a discussion of staging costs. Staging costs are an allowable cost of sale as advertising expenses provided they don't make any changes to the home. Bring in the furniture and decorations but take them all away later. Any changes to the home itself are either improvements (which are allowable) or are repairs (which are not allowable). Repairs and maintenance are the expectation of everyone who owns property and you don't get special tax breaks for it.
Fix-up expenses ended with the Taxpayer Relief Act of 1997.
I spoke with a Turbo Tax "tax expert", and she told me she had 25 years experience and that the 90 day rule for repairs/fix up to sell was dedectable; however, she could not find IRS code for it and a google search showed as you mention that is is no longer dedectable.
I spoke with a Turbo Tax "tax expert", and she told me she had 25 years experience and that the 90 day rule for repairs/fix up to sell was dedectable;
Again, that ended back in 1997.
, she could not find IRS code for it
Because it hasn't existed for more than 20 years now.
@louisebthacker wrote:
I spoke with a Turbo Tax "tax expert", and she told me she had 25 years experience and that the 90 day rule for repairs/fix up to sell was dedectable; however, she could not find IRS code for it....
Exactly, and the IRS is concerned with the Code (and Regs), not with the number of years of experience of "tax experts".
The comment was made that "If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing." Can someone please advise where in an IRS Publication or code or whatever it says that. IRS staffers indicate in the negative.
@Multifrus88 wrote:
The comment was made that "If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing." Can someone please advise where in an IRS Publication or code or whatever it says that. IRS staffers indicate in the negative.
That rule was eliminated from the law in 1997 or maybe even earlier. The current rules are in publication 523.