@Mike9241 wrote:
I would include them in selling expenses.
That's complicated and I disagree with my colleague.
Staging expenses are considered a selling expense. By staging I mean things like having someone come to the house, rearrange the furniture, you rent some pieces and so on, and when they leave, the house is as-was. Staging expenses are selling expenses like the real estate commission and advertising, and by reducing the selling price, the reduce the capital gains.
Repairs are your responsibility as a homeowner, and you don't normally get to deduct them. The idea that you can get a "tax deduction" (so to speak) by deferring repairs until you are forced to make them, is generally not acceptable to the IRS. You can't convert a non-deductible expense to a deductible expense by being lazy. I read an analysis or maybe a tax court case that staging expenses were allowable selling expenses as long as no actual change was made to the home, it was restored to as-was. Under that logic, deferred repairs that you agree to make in order to close the sale are not allowable selling expenses because they change the home; you should have been keeping up with repairs and maintenance all along.
A quick google search shows web sites on both sides of the question but this is more persuasive to me:
Myth 1: “I can deduct the costs of maintenance, repairs, and decorating related to preparing my home for sale.”
Fact: 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. Under today’s tax rules, however, you are allowed to increase your cost basis by tacking on additional costs spent on capital improvements for the home.
https://www.homelight.com/blog/tax-write-offs-for-sellers/
Similar here
From CPA Rob Unger: “With regard to the timeline, the costs of staging are only deductible if the home is for sale and actively on the market. If the home is on the market then taken off without a sale, the cost of staging is not deductible.
“The IRS does not allow you to deduct expenses for repairs, maintenance and upkeep on your main home, so these expenses cannot be subtracted from the sale of your home. Fresh paint, new carpet, furniture and home decorations are not tax-deductible expenses, even if a home stager recommends them.
https://claudiajacobsdesigns.com/are-home-staging-costs-tax-deductible/
See also IRS publication 523 page 9,
Examples of improvements you CAN’T include in your basis. You can’t include:
Any costs of repairs or maintenance that are neces-sary to keep your home in good condition but don’t add to its value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware.
Improvements adjust the cost basis, but not repairs.
