How/where do we report improvement costs on a second home sold in 2017 that we obtained as an inheritance in 2012. Do we add them to the selling costs?

[nrthom18]

We inherited a second house in 2012 valued at $100K, spent $35K in improvements, and sold it in 2017 for $229K.  We need to reduce our capital gain tax for the value for the improvements.

[Carl]

Your property improvements do not add to the selling costs. They add to your cost basis in the property.

"valued at $100K, spent $35K in improvements"

So your cost basis in the property is $135K. Since you sold it for $229K you have a $94K taxable gain. That figure will not be exact, as while working it through the program you will have deductible sales expenses.