Renovation Charges and Possible Audit - Key Questions

[zenmster]

Hello,

1. I'm getting my house fixed up to sell. 

2. My realtor is covering the costs then taking costs off the sale price

3. I've asked for receipts/proof of payment from the realtor for everything she is going to take off the sale price. 

4. Questions:

a.  If I get audited - do I need to have the actual bills/invoices that the realtor paid?

b. What constitutes appropriate backup as proof of payment

FOR EXAMPLE the realtor sent me

b1: venmo screen shots with no date 

b2: copies of checks that have not yet been cashed 

b3: one check not cashed and no payee but signed and has an amt.

b4: one set of receipts that are partially cut off

Are these acceptable to the IRS?

[KrisD15]

How is the realtor getting reimbursed? 

If the amount will be deducted on your closing statement, that should be proof enough. 

If not, I assume you would make a check out to the realtor, so that would be your proof. 

You could have the realtor make out an invoice for the total which would put the responsibility of providing proof on the realtor. 

Technically, the realtor might be responsible to claim the amount as income and expense the amount of repairs against that income. 

[zenmster]

the realtor is subtracting her renovation costs from the sale price so there will prob be a line item somewhere i THINK but bottom line is i am not writing her a check - she is getting reimbursed from i think escrow? 

[zenmster]

so do i need an invoice? all receipts? 

[zenmster]

see my bullet #2 in orig post - not writing a check 

[KrisD15]

Yes, you can contact the Title office that is doing the closing and make sure the cost of renovations is listed on the closing statement. 

That should suffice for documentation. 

I assume you are concerned with documentation for purpose of figuring the gain from the sale of the house. If you lived in the house at least 2 of the last 5 years, you may be able to exclude up to 250,000 gain on the house (500,000 if married and filing jointly). 

Additionally, the repair cost listed on the closing statement or a reduced sale price will have the same impact on the gain. I assume the real estate agent will list the full sale price so the commission is figured on that larger number, and then subtract the repair cost. 

IRS Topic 701 Sale of your home