Can I add $11,000 that I spent to fix my house's foundation in 2006 to the cost basis of my house?

[tuanngnttax]

I sold my second home last year.  I bought this 2nd home in 1995 for $25,000 and I spent $11,000 to fix the foundation of this home in 2006.  Can I add this foundation fixing cost to the cost basis of $25,000?

[tuanngnttax]

Can I add this foundation fixing cost ($11,000) to the original cost basis of $25,000 to become a new cost basis of my second home?  Will this be ok with IRS?

[PattiF]

Yes, that expense of fixing the foundation can be added to the cost basis.

To qualify as an increase in the adjusted basis when you sell, the home improvement must:

• Add materially to the value of your home; or
• Prolong your home's useful life significantly; or
• Adapt your home to new uses

Here are some examples of improvements:

• Remodels and room additions (including decks and porches)
• New or upgraded landscaping, irrigation, sprinkler system
• Hardscape such as pavement, block or retaining wall, patio
• Fencing
• Storm windows, doors
• New roof
• Upgraded wiring, plumbing, ductwork
• Central heating, AC, humidifier
• New furnace, water heater
• Filtration, soft-water, or septic system
• Built-in appliances
• New flooring or wall-to-wall carpeting
• Upgraded insulation

Other items can be added to the cost basis such as some items found on the settlement statement.

Generally, these expenses can be added to the cost basis:

• Loan origination fees.
• Title fees.
• Transfer fees.
• Mortgage interest.
• Mortgage points.
• Real estate property taxes. 

[tuanngnttax]

By the way, the receipt document of this foundation fixing cost is in my father name, not my name. Is this OK?

[tuanngnttax]

Oh by the way, the insurance did pay the new roof on this house last year and it was installed a few months before I sold the house.  Can I add this new roof cost to the cost basis even my insurance already paid for it?

[Bobbi35]

Generally, yes. See IRS Publication 523 Sale of Home. It explains what constitutes your basis and adjustments to it.

[tuanngnttax]

I believe that I can add my deductible payment for a new roof replacement to the cost basis of my 2nd home; but does a new roof needs to be installed for at least 1 year in order to get this benefit of cost basis adjustment? Because I installed a new roof in March 2022; then I sold this 2nd house in June 2022. It is only 3 months old.

[JosephS1 · Accepted solution]

Yes, you can add the additional money expended on the roof to the basis of the home even though you sold it soon afterwards.  There used to be a caption entitled "fixing up expenses" to prepare for a sale that allowed you to deduct that amount from the sales proceeds but adding to the basis would be the better way to handle it.

@tuanngnttax 

[tuanngnttax]

So the new roof doesn't need to be installed for at least 1 year in order to qualify.  Is that correct?

[DawnC]

No, you can include the cost once the roof replacement is complete.   You mentioned you received insurance reimbursement above.  Any costs paid or reimbursed by an insurance claim are not added to the home's basis.

[tuanngnttax]

Thank you