Adjusted cost basis for home sale

[Mannyac]

I live in a community property state and sold a home 50/50 joint ownership with my partner.  We separated and sold the home, and both received a 1099-S with equal sale proceeds.  I personally paid for all the remodeling upgrade costs that resulted in the increased sale market value and I expect to deduct all these expenses.   Now that we have sold the home and separated, does my partner have a way adjust the Cost Basis by reducing these home remodel upgrade costs that increased the overall fair market value?  Is this considered a gift? Thank you.

[MarilynG1]

Yes, when you are reporting the sale, you can add the Improvements to your Cost Basis, reducing your gain on the sale.  However, if this was your primary residence, your gain may be excluded anyway, you are just reporting.

Your partner would not add the Improvements to their Cost Basis when reporting the sale, so will have a larger gain than you.  Once again, all their gain may be excluded.

Here's more info on the Home Sale Exclusion and Sale of Primary Home.

@Mannyac 

[Mannyac]

Thanks Marilyn - There is a section that allows additional explanation of increase in cost as a means to lower overall cost basis beyond the 250k/500k exemption.  As I split the remodeling investment with my partner it increased her overall cost basis.  Since we separated, can my partner include this increase in cost basis reduction calculation.   See below snapshot from TurboTax. I also read P523 end to end and it is far from clear.  Any additional insight appreciated.   Or any tax attorney out there willing to call me and assist - I will reimburse your time.

[Mannyac]

Any takers on this question?

[Mike9241]

if you're saying your partner paid a portion of the costs the of improvements then they add that cost to their previous basis and you enter your share to your previous basis. previous basis = tax basis before the improvements. 

[Mannyac]

Thanks Mike.  I am saying the opposite.  My partner did not pay for any of the remodel expenses nor can she take the deduction for the expenses, but her cost basis increased as a result.  Does she have a means to exclude the remodel expenses from the cost basis even though the sale was split 50/50.

Example. 

Sale of house.  $3M

Expense of remodel 600k.

50/50 cost basis $1.5M

Can partner reduce cost basis by any of the 600k even though partner will no pay for and will not adjust cost basis by these expenses to remodel home?   Specifically in this section screenshot below.