Sold foreign property

[ishyronosova]

We had a property in Ukraine that we bought in 2017 in Ukrainian Hryvnia, at that moment it was about 35K USD. The property was in a new building without an interior repair at all. Therefore we spent about 40K USD on making the interior repair, however unfortunately we don't have receipts at the moment since it was done in 2018. After we made the interior repair, we had lived in that property for a year, and then moved to Canada and then to the US, during that time we had leased the property (in total for about 1-1.5 years). We stopped leasing the property starting from February 2022. On September 12, 2023 we sold the property for 70K USD. How should we file this property sale in our 2023 tax return? Can we claim we bought it for 35K and made a repair for 40K (without receipts) to avoid a capital gain?

[MarilynG1]

You could report this is a couple different ways.

If you haven't been reporting Rental Income and Expenses, you could now report the sale as the Sale of a Second Home (an investment sale). 

Since the value of the property was valued at 75K when you sold it for 70K, you have no Capital Gains to report.  You can't claim a loss on personal property.

Your Cost Basis for the Sale was the 35K you paid for it, plus the 40K of improvements you added to it.  The only caveat is that you have no receipts for the 40K  you spent, if they were requested. 

Or, you can enter the property as a Rental Property, with a beginning Cost Basis of 75K; however, unless you have rental income and expense receipts for the period you rented, the first option would be easier.

@ishyronosova 

[ishyronosova]

Great, thank you Merilyn @MarilynG1 ! Does it mean that we can claim the property was valued at 75K even if we don't have receipts for the 40K interior repair? If yes, may it bring any negative consequences, e.g. if IRS asks for receipts?

[MarilynG1]

Yes, you can claim the property was valued at 75K.  

There could be consequences for not having receipts, but since you are reporting a small personal loss (which is not a deduction), this is not a red flag.  Additionally, you have had couple of international moves since then. 

You might consider writing down your expenses for labor/materials as best you can recollect from the time of the renovation to save with your tax records.

@ishyronosova