Sale of Primary Residence after 18 months

[DavesRentals]

I sold my primary residence in April 2022 and took advantage of the capital gain exclusion. I purchased another home in March 2022 which I lived in until October 2023 at which point it was sold. I don't meet the criteria for a partial capital gains exclusion so I will pay capital gains tax on the sale.

Let's say I purchased the home for $175,000, had $3,000 in closing costs and spent $5,000 on improvements (painting & landscaping). Does this increase my basis to $183,000?

If I sold it for $210,000 and had $12,000 in commissions & other closing costs, my gain would be $198,000 - $183,000 = $15,000

Is this a correct interpretation of the costs I can deduct?

Thanks

[Anonymous_ · Accepted solution]

Your math is correct except you cannot add all closing costs to your basis (or deduct them).

See https://www.irs.gov/publications/p523#en_US_2022_publink100010751

Further, painting, without more, would not be considered an improvement the cost of which you could add to your basis.

See https://www.irs.gov/publications/p523#en_US_2022_publink100010755

[DavesRentals]

Thanks

Interesting that they don't consider painting an improvement even if it does improve the value of your home (example would be it is easier to sell a house for more money when it is painted a neutral color than one which has a green living room, purple bedroom, red bathroom etc).

Any costs of repairs or maintenance that are necessary to keep your home in good condition but don’t add to its value or prolong its life. Examples include painting (interior or exterior)

[Anonymous_]

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@DavesRentals wrote:

Interesting that they don't consider painting an improvement even if it does improve the value of your home...

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I agree; it doesn't really make a lot of sense and is simply bad tax policy, in my opinion.