A taxpayer and his wife sold their former home last year. Because the gain exceeds the 500,000 capital gain exclusion, they want to claim the cost of improvements that had been done in the former home through the years. The taxpayer told you that they have lost most of the receipts of the improvement works. You explained to him that, without the receipts, it's possible that the deductions will be disallowed under an audit. He said he understood. He then gave you a list of the improvement works that had been done and the corresponding costs based on his best memory. You add the cost to the basis of their home sold. Any problem?
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Last edited by Questionguy101; 07-16-2007, 05:12 PM. -
Sounds good to me. As long as he knows the IRS could cause a problem in an audit. -
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Just be sure that the client does this list of improvements in his handwriting. He should try to put as much detail and approximate date of each improvement.
I would also make sure that these could not be called ordinary repairs and maintenance by the IRS.Jiggers, EAComment
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Does he have pictures?
Ask him to dig up pictures of before and after improvements. Keep them with the return just in case.Last edited by JG EA; 07-16-2007, 11:54 PM.JGComment
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Thank you for all the replies.
Yes I have explained to him clearly the possibility. And I told him it's his decision whether to claim the cost of improvements or not. He decided to go ahead.Originally posted by Bees Knees View Post
Well he gave me a computer print-out of the list. I guess I may want to ask him to sign on the print-out. Is it necessary though?Originally posted by Jiggers View Post
I will surely tell him to do that. Hopefully he can come up with some pictures for me to keep in his file. Fingers crossed.Originally posted by JG EA View PostLast edited by Questionguy101; 07-17-2007, 01:34 AM.Comment
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A year or two ago IRS announced that it was NO longer necessary for taxpayers to maintain
a record of the cost of a residence. This is BOUND to cause problems.Comment
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Dyne,Originally posted by dyne View Post
Do you have a site or quote from the IRS stating this? I would be interested to read it. It just does not seem plausible that the IRS would tell people that they are not required to maintain records.Comment
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No, I did not keep a copy of the IRS notice which stated that it is no longer necessary for taxpayers to maintain a record of the basis of a residence. I saw it but did not keep it as it makes no sense. I imagine they assumed that Section 121 would eliminate the tax on sales of most residences. Most people already would have difficulty in verifying their basis anyway,
especially regarding improvements.Comment
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