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nan306
Level 2

inherited house

can I claim the utilities I paid for 8 months as a selling expense on a inherited house. No one lived in it and it was sold after 8 months 

1 Best answer

Accepted Solutions
Opus 17
Level 15

inherited house

That's complicated.

The rules for investment property before tax reform of 2018 were that carrying expenses could be deducted as miscellaneous itemized deductions subject to the 2% rule, or they could be capitalized, which means adding them to the cost basis.  To capitalize your costs, you had to attach a written statement to your tax return for each year that you capitalized costs.  (If you inherited the home in Sept 2019 and sold in March 2020, then you would need a capitalizing statement on your 2019 and 2020 returns.). And a written statement can't be attached to an e-file in Turbotax so that means filing by mail.

 

The tax code that allows costs to be capitalized says that you can capitalize deductible costs if you choose not to deduct them.   The TCJA of 2018 eliminated the 2% miscellaneous itemized deduction, but it's not clear if that also means that such costs are no longer allowed to be capitalized.  The real estate industry is waiting for final clarification from the IRS, which still has not come yet.  

 

So you can't deduct them, but you might take a chance and capitalize them. This would mean adding a written statement to your 2020 return and possibly filing an amended return for 2019.   By adding them to your cost basis, you reduce your capital gains and the gains tax you owe.  But, for inherited property, your basis is the market value of the property on the day the previous owner died, and unless you are in a really hot market, that is probably close to your selling price, so you might not have enough of a taxable gain to bother about capitalizing the utilities. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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2 Replies
Opus 17
Level 15

inherited house

That's complicated.

The rules for investment property before tax reform of 2018 were that carrying expenses could be deducted as miscellaneous itemized deductions subject to the 2% rule, or they could be capitalized, which means adding them to the cost basis.  To capitalize your costs, you had to attach a written statement to your tax return for each year that you capitalized costs.  (If you inherited the home in Sept 2019 and sold in March 2020, then you would need a capitalizing statement on your 2019 and 2020 returns.). And a written statement can't be attached to an e-file in Turbotax so that means filing by mail.

 

The tax code that allows costs to be capitalized says that you can capitalize deductible costs if you choose not to deduct them.   The TCJA of 2018 eliminated the 2% miscellaneous itemized deduction, but it's not clear if that also means that such costs are no longer allowed to be capitalized.  The real estate industry is waiting for final clarification from the IRS, which still has not come yet.  

 

So you can't deduct them, but you might take a chance and capitalize them. This would mean adding a written statement to your 2020 return and possibly filing an amended return for 2019.   By adding them to your cost basis, you reduce your capital gains and the gains tax you owe.  But, for inherited property, your basis is the market value of the property on the day the previous owner died, and unless you are in a really hot market, that is probably close to your selling price, so you might not have enough of a taxable gain to bother about capitalizing the utilities. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

nan306
Level 2

inherited house

thank you for your reply,  you are right it is complicated I think I'll just forget about the utilities.

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