reducing tax on home sale

[Ava va]

I made a lot of improvements on a house I sold earlier this year, so I did make a profit.  How can I levy the costs of the improvements (maybe $40K) so that reduces any capital gains. I was only at that address for 15 months.  However, my income for this year will be less than $30K, does that help reduce any capital gain taxing?

[JaredS_CPA]

Hello Ava va,

Thank you for participating in our Ask the experts event today.

As you alluded to, because you did not live in the home for at least 2 years, you will be subject to capital gains on the profit you make. However, the ~$40k in improvements you made can be added to the cost of the home to reduce the capital gains tax.

Additionally, this article will help you estimate how much your captial gains tax might be.

Good luck.

[erinm0717]

Hello @Ava va!! Happy to assist you today!

You will want to make sure that you include the amount of the improvements in the cost basis.   Your cost basis will be the amount you paid for the home, plus any capital improvements made less any casualty losses.  Since the improvements will make your cost basis higher, this will automatically reduce the gain on the property.

Is this a personal property of a business or rental property?

If it is a personal property, then I would make sure to be aware of the IRS exclusion available to you.  Here are some details on that: https://www.irs.gov/taxtopics/tc701 .  Since you only lived there for 15 months, then you did not meet the ownership and use test for this one, but this is good to know for the future.

If it was a rental property, then the exclusion would not apply.

There are also some selling fees you will be able to deduct to avoid some capital gains. Here is a great link which explains what you can deduct: Selling Expenses .  

I hope this helps and please follow up if you have any questions!

[Ava va]

This was my personal residence, and I already used the exclusion on a prior house sale.  My question is also, I don't remember any of these questions on Turbo Tax in the past when filing. Will there be options to include improvements and selling costs when I file next year?

[JaredS_CPA]

Yes, when you walk through the TurboTax questions and it asks for the cost of your home, there will be a link you can click that will provide more information on what you can include in the cost of your home. So, it won't be obvious where it will provide an entry field, but it there will information to guide you.