Sale of Home

[robdmd]

My wife and I are separated (not legally) and maintains separate households since 2019.  We filed joint return in 2019 and 2020 since it appeared to provide the biggest tax deductions.  When we separated, she moved back to her house that she bought before we were married, and subsequently sold her house in early 2011 and moved to a new residence.

-  Can we report her house as sales of home if we still file a joint return for 2021?  I would still be the main filer and she would be "spouse".  But the house was in her name.

-  She was married before and took over the house after the divorce.  She paid her ex-husband some additional money to get the house.  Can she include the money she paid her ex-husband to get the house as part of the cost basis?

-  It looks that the cost basis for buying her house years ago would include the original purchase price, certain closing costs of the original purchase such as title insurance, loan fees, misc fees, and interests paid during closing?  She cannot find the original settlement document that showed the selling expenses.  Can we make reasonable estimates?

-  I see that we can include improvements over the years in full costs (not depreciated).  What other costs can be included in the cost basis?

- For selling her house in 2021, it looks that we can include the selling expenses reported by the escrow company in the settlement statement as part of the cost basis?  What other expenses, such as traveling costs from her new residence to her house to deal with the real estate agent during the period when the house was listed for sale, and repairs as the result of the home inspection required by the buyer's mortage lender, can be included as part of the selling expenses?

Thank you.

[JohnB5677]

Yes, you can report the house as sales of a home if we still file a joint return for 2021. 

 Yes, you can include the money she paid her ex-husband to get the house as part of the cost basis.  However, you can only include 1/2 of the original purchase price, certain closing costs of the original purchase such as title insurance, loan fees, misc. fees, and interests paid during closing. 

The 1/2 rule also applies to improvements.  And you are correct that they are not depreciated.

These items can also be deducted from your current taxes. The IRS denotes the following as deductible costs:

On the home you sold:

• Real estate taxes charged to you when you closed

• Sales tax issued at closing

• Mortgage interest was paid when the cost was settled

• Real estate taxes that were paid for by the mortgage lender

On a purchased home:

• The interest you paid at the house’s purchase

• Loan origination fees (a.k.a. “points”). These would be written as a percentage of the borrowed money.

[robdmd]

Thank you for your reply.  We cannot locate the settlement statement when she purchased the house.  Can we do a reasonable estimate of the settlement costs for reporting?  Or what suggestion may you have to determine the costs for deduction?  Thank you.

[JulieS]

You can verify the purchase price with your county property appraiser. The information may even be available to view online, depending on where you live. 

Since it seems likely that any gain would be excluded from taxable income based on her living in the home for two years before selling it, I wouldn't estimate figures. 

As @JohnB5677 states, the improvements can be added to the basis and certain expenses are currently deductible. 

You can't add in travel costs, but any repairs made as a condition of sale are considered selling costs. 

As far as estimating figures, you can do it in some circumstances, but I urge you to see how things come out just using the figures you can document.