Can I Include Unverified Remodeling Costs in the Cost Basis of My Sold Home?

[dandanyaodan]

I purchased a house in 2008 and spent approximately $40,000 on remodeling shortly after. Unfortunately, I no longer have receipts or bank records to verify these expenses, but I do have before-and-after pictures of the remodeling. I sold the house last year. Can I include a rough estimate of these remodeling costs in the cost basis for tax purposes?

[Mike9241]

ignoring the improvements for a moment, you would qualify for the Home sale exclusion - $250K (single filing status) - if it was your principal residence for any 2 out of 5 years before the sale. The improvements won't matter if the HSE exclusion eliminates any taxable gain. if there is still a gain, you are at the mercy of the  IRS. It could take the position upon audit prove the $ amount or lose it. The pictures might help. 

[dandanyaodan]

Thanks!  This is a rental property so the captain gain can't be excluded unfortunately 😢

[PatriciaV]

It might be prudent to obtain a verified appraisal from a licensed real estate agent that provides values both before and after renovation of the rental property. While this won't document your cost, it will be evidence that your efforts increased the value of the property. A real estate agent can also advise you on the best methods for estimating your costs, since these renovations were done many years ago.

Be aware that the lack of written documentation is the main reason certain deductions are denied by the IRS. You might contact your bank and request statements for the period when you were paying for the remodeling. Likewise for credit card statements. Any documentation is better than none, even if you have to pay for the historical records.

@dandanyaodan 

[dandanyaodan]

Thank you! unfortunately, these remodeling was done 17 years ago and the  bank doesn't have that history anymore.  I guess I need to learn the lesson :(.