What expenses other than realtor commissions reduce the proceeds on inherited property? Out of the following, what expenses are allowed - interior repairs and painting, interior cleaning, exterior power washing, new HVAC and new appliances.

[SusanY1]

All of the repairs, maintenance, and improvements to the property can be added to the basis of an inherited property when determining the gain (or loss) on the sale.

Also, keep in mind that the basis of inherited property is its Fair Market Value(FMV) on the date of death of the original owner or the alternate valuation date of the estate (if applicable) and not the original purchase price.  

[NAL0703]

@SusanY1  - THANK YOU for your response. 

However, I'm a bit confused when you say "All of the repairs, maintenance, and improvements to the property can be added to the basis...".  Does that mean the FMV on the date of death actually increases?

For example, the FMV on the DOD is $200,000.     

House sold @ $225,000.

Realtor commission 5% = $11,250

New HVAC = $5,000

Repairs, Painting and Power washing = $15,000

When I enter the values in TurboTax - my net proceeds will be:  $193,750 and the FMV is $200,000 - resulting is a capital loss of $6250.  Is this correct?

[RobertG]

Yes, that is correct if the property you sold is a business property, such as a rental or property held for investment.  If it was only used for personal purposes you would not be allowed to claim a loss.

[Anonymous]

I'll assume all the items you mentioned were incurred after you inherited it and were to make it ready for sale.

Realtor commission 5% = $11,250   this is a selling expense

New HVAC = $5,000 - this is added to basis 

Repairs, Painting and Power washing = $15,000 this is selling expense 

When I enter the values in TurboTax - my net proceeds will be: $193,750 and the FMV is $200,000 - resulting is a capital loss of $6250. Is this correct?

there usually are other selling expenses such as title charges,   we can't see the closing statement, so there could be others.  

whether the loss is deductible depends on what use it was put to if any, after the inheritance. if used as a personal residence  - the loss is not deductible.

if it was left vacant and intended to be sold or it was rental, this would be investment property and the loss would be capital. 

[NAL0703]

@Anonymous 

Yes, all items were incurred after the property was inherited to prep the house before putting it on the market.

The house was never used as a personal residence - it was left vacant and sold.

Thank you for clarifying that the HVAC increases the cost basis (FMV) - I did not realize that.   Does it increase the cost basis even if the new HVAC replaced an older one that broke?

So basically,  I must report the Cost Basis as $200,000 (FMV) + $5,000 - correct?

Proceeds will be $205,000 less ALL selling expenses, including any title charges - correct?

THANK YOU again for your help!

[NAL0703]

An additional question - since TurboTax asks me to enter FMV and the Net Proceeds value  - is it better to adjust the cost basis with all my commissions, expenses and improvements? Or should I add the improvements only to the FMV and deduct the expenses and commissions from the Net Proceeds.  Since I was given a 1099-S should my net proceeds match what is on that form?

[MarilynG1]

Any gain from the sale of an interited home is based on the difference between the Cost Basis and Sales Proceeds (reported on 1099-S).

You can add any Expenses you incurred fixing the house to prepare for sale (plus Sales Expenses) to the Cost Basis (value on date of death).

Click the link for detailed info Reporting the Sale of an Inherited Home. 

[NAL0703]

Can the monthly HOA fees, utilities, security and Homeowner's insurance costs from the date of inheritance to the date of sale also be included as an expense added to the Cost Basis?

These expenses were paid out of pocket and not from the estate.

[MarilynG1]

Yes, any expenses required to make the property saleable.   Click here for more info. 

[cjpzz1]

The responses to this question vary here and for other similar questions.  I realize an inherited home that is not used for personal use is considered an investment.  But which is it, are painting and repairs which get an inherited non-rental home into selling condition a selling expense or are they added to basis (the home FMV on the date of death)?  Can anyone provide a IRS citation that says which is allowed?  (The IRS pubs for basis and for selling a home, both of which mention inherited homes, seem to imply painting and repairs are neither selling expenses nor added to basis.)  Thanks.  

[Cynthiad66]

The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death.  “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.

Examples of common property repair and maintenance expenses that are generally deductible in computing rental business profits include:

• exterior and interior painting and decorating,
• stone cleaning,
• damp and rot treatment,
• mending broken windows, doors, furniture, and machines such as cookers or lifts,
• re-pointing, and

You can enter this info in the investment section of TurboTax. Select the product you’re using for the right instructions.

Note: To report investment sales, you’ll have to use TurboTax Premier, TurboTax Self-Employed, or TurboTax Home & Business.

Sale of inherited home

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I'll choose what I work on” (jump to full list)

[cjpzz1]

Thanks but I am not talking about improvements, I am talking about repairs.  Also, elsewhere I have seen this regarding the 90 rule you reference:  "Run-of-the-mill home repairs necessary to maintain your property’s condition or get it ready for sale are not tax deductible under current tax code Publication 523.  Confusion arises over online reports that may erroneously refer to dated federal IRS code that allowed home sellers to deduct “fixing-up” expenses, such as “the costs of painting the home, planting flowers, and replacing broken windows” completed in the 90 days prior to closing. That tax break no longer exists. "   I have seen similar statements and the 90 day repair rule might have been eliminated by the Tax Cuts and Jobs Act of 2017, but maybe the 90 day rule still applies to inherited non-rental investment property?  That is why I am asking for a IRS citation where it says painting/repairs (not improvements) are either selling expenses or added to basis for non-rental inherited home not used personally (investment property).

As far as your reference to repair and maintenance expenses deductible for rental property, the inherited home is not rental property.

Thanks.

[AmyC]

There is no 90 days of selling expenses listed in the IRS pub.  If you acquire property other than through a purchase (such as a gift or an inheritance), refer to Publication 551, Basis of Assets for more information. On the  left side, you will see Main Content, Scroll Down to Real Estate. Click on the blue link for Real Estate.

Related:

About Publication 551, Basis of Assets

Topic No. 703 Basis of Assets

@cjpzz1

[cjpzz1]

Thanks. I followed your link and see Real Property on the left side of Pub 551 and click on it.  However, I cannot locate in the pub where it says repairs, painting, etc., which are referenced in the original question, can be be treated either as selling expenses or added to basis.  Most of the responses to this question state either treatment is allowable but do not provide a citation.  So if you have a specific section of Pub 551, or a different citation where it states either treatment is allowable, could you please provide it.  Or are you saying repairs, painting, etc. made to an inherited non-rental home that is investment property cannot be treated as selling expenses nor added to basis?  Thank you.