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.

[ReneeM7122]

There is a difference between a capital improvement that increases your home’s value and repairs such as painting your house, and whether you can deduct these costs when the purpose is to sell your home has to do with timing.  The source on the IRS website is below but first here is some clarification about repairs and cost basis:

Most repairs that return your home to its original condition won’t increase your cost basis. Improvements that last more than a year and add value to home do increase your home's basis, however, as long as they are still apparent when your home is sold. An example of this would be a home remodel project.  Let's say you paint your home while you live there.  That does not count because it is maintenance and restores it to the original form.  You refinish the floor - it also doesn't count.  However if you refinish the basement, then the paint and flooring that you buy for the project does count because it is part of the remodel.  Remodeling increases the basis of the property.

When you do repairs (home improvements) that would be considered maintenance because you want to sell the home, it's different.  In this case, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing.  The timing is very important.

Here is the source on the IRS website, Pub 530: 

Improvements.

An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. You must add the cost of any improvements to the basis of your home. You can't deduct these costs. 

Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway.

Amount added to basis.

The amount you add to your basis for improvements is your actual cost. This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence.

You must also add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. These assessments are discussed earlier under State and Local Real Estate Taxes .

Improvements no longer part of home.

Your home's adjusted basis doesn't include the cost of any improvements that are replaced and are no longer part of the home.

Example.

You put wall-to-wall carpeting in your home 15 years ago. Later, you replaced that carpeting with new wall-to-wall carpeting. The cost of the old carpeting you replaced is no longer part of your home's adjusted basis.

Repairs versus improvements.

A repair keeps your home in an ordinary, efficient operating condition. It doesn't add to the value of your home or prolong its life. Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. You can't deduct repair costs and generally can't add them to the basis of your home. 

However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. You add them to the basis of your home.

@cjpzz1

[cjpzz1]

 The answers continue to vary regarding the treatment of repairs (not improvements) referenced in the original question.  Below is a summary.

 SusanY1  says "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."

 RobertG  agrees these items can be included for determining gain or loss, although it is unclear whether they are added to basis or are treated as selling expenses.

Anonymous says the Repairs, Painting and Power washing are selling expenses.

MarilynG1 says "You can add any Expenses you incurred fixing the house to prepare for sale (plus Sales Expenses) to the Cost Basis."  Also to a follow-up question about monthly HOA fees, utilities, security and Homeowner's insurance costs also being added to basis; MarilynG1 also says "Yes, any expenses required to make the property saleable" but none of the other responders mention HOA fees, utilities, security and Homeowner's insurance costs.   

Cynthiad66 references improvements made within 90 of closing, which appears to be old info, and the implication is the items are neither added to basis or selling expenses.  She also addresses repair and maintenance deductions are allowed for rental property, but that is not the subject issue.  

AmyC  says there is no 90 day rule and just references Pub 551 Basis of Assets, but I don't see anywhere in the pub says the items can be added to basis or treated as selling expenses like many of the above responders state. 

ReneeM7122   also references repairs made within 90 days of closing are selling costs and she references Pub 530, but the 90 day rule is not in the Pub and appears to be old info that is no longer accurate.  She also mentions living in the house and that would be personal use and then not considered an investment, so that is also not applicable for the subject case.  And she says you can't deduct repair costs and generally can't add them to the basis of your home, which is different than what many of the responders say.  

I would think the subject of this question would be extremely common since each year many people end up inheriting a home and sell it without using it personally.  So I am not sure why the answers vary so much and why I can't find a citation that clearly states what is allowable, unless Pub 530 is determining and then it sounds like repairs are neither added to basis or selling expenses.  This question has also been asked other times and even has other different answers, such as electing to capitalize repairs on unimproved and unproductive property, which also does not appear to apply since the subject property is a house and thus is improved property.  It would be beneficial if this issue could be answered conclusively and with a citation.  Does this forum have a process where someone can raise this question to a subject matter expert who specializes in this issue, or who as a contact in the IRS?  That way we could get a conclusive answer with citations about the treatment of HOA fees, utilities, security and Homeowner's insurance costs and also the treatment of Repairs, Painting and Power washing (not part of an improvement).  That way we don't have to keep looking at this question here and in other similar questions in the future, LOL!  Or, since the original question is over a year old, should I restart it new and ask for a subject matter expert response?  Thanks.

[AmyC]

As far as utility expenses, HOA fees, repairs, pressure washing,  insurance, etc. all of that is normal upkeep expenses of the estate. The estate pays for those things until the property is sold. None of that would be in the basis of the house. That is routine maintenance paid out of the estate. It is the fiduciary responsibility of the executor to sell things and distribute quickly, this is one of the reasons.

This is just a community forum. You have been answered by some of the oldest and wisest among us. I spend a week with the IRS each year. The laws change and inherited property is usually simple because a person inherits and sells fairly quickly so there is no profit in selling it soon after death. We don't really see people holding onto inherited property for a long time unless they were living there.

We see in Pub 551: 

Settlement costs.

Your basis includes the settlement fees and closing costs for buying property. You can't include in your basis the fees and costs for getting a loan on property. A fee for buying property is a cost that must be paid even if you bought the property for cash. 

The following items are some of the settlement fees or closing costs you can include in the basis of your property.

• Abstract fees (abstract of title fees).

• Charges for installing utility services.

• Legal fees (including title search and preparation of the sales contract and deed).

• Recording fees.

• Surveys.

• Transfer taxes.

• Owner's title insurance.

• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

We also see: 

Inherited Property

The basis of property inherited from a decedent is generally one of the following.

1. The FMV of the property at the date of the individual's death.

2. The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. For information on the alternate valuation date, see the Instructions for Form 706.

3. The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. This method is discussed later.

4. The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. For information on a qualified conservation easement, see the Instructions for Form 706.

If a federal estate tax return doesn't have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes.

For more information, see the Instructions for Form 706.

@cjpzz1

[crackerspeople]

What is the case for a second home with considerable renovations?

Do I manually adjust the value of the old home  on the 1099S ?

Thanks

[ColeenD3]

Yes, you would increase the basis. Do not change the sales price as you want your return to agree with the 1099-S.

@crackerspeople

[mcklock]

I sold inherited land.  Value at date inherited is $10000.  To get it sold I needed to get a survey and testing for approval for installation of a septic system-- costs of $2300.  Do I just list the basis on form 8949 as 12300?  Or is it more complicated than that?

[DaveF1006]

Yes, since it is a significant improvement to the home, you can add the $2300 as basis to the FMV.