Fix Up Exps Of Rental Not Sold

[GTS1101]

I have a client who lived in house A for many years. They owned and rented out house B also for several years. They decided to sell house B so they moved out of A and into house B for two years so they could avoid the capital gains tax by making it their personal residence for 2 out of 5 years and the gain would be less than 500,000. While living in house B as their residental home they did a lot of work to fix it up repairs, improvements, etc to try to get it to sell. The home did not sell and is still sitting on the market. They moved back to house A and left house B on the market. They may rent out house B again if they can't get a buyer. My question would be the money they put into repairs and improvements are added to the basis and reduce the gain when sold or can they write off as some rental expenses since they may rent out again in 2008.

GTS1101

[taxea]

Fix Up Exps Of Rental Not Sold

The question is: was the house available for rent..the answer is no...they should have stayed in house A, left house B available for renting while doing the renovations. They can't have it both ways. B was their primary residence while it was being renovated, not deductible. taxea

[Roland Slugg]

While living in house B as their residental (sic) home they did a lot of work to fix it up repairs, improvements, etc to try to get it to sell. The home did not sell and is still sitting on the market. They moved back to house A and left house B on the market. They may rent out house B again if they can't get a buyer. My question would be the money they put into repairs and improvements are added to the basis and reduce the gain when sold or can they write off as some rental expenses since they may rent out again in 2008.

The money spent on "repairs" while living there is not deductible. The money spent on "improvements" while living there should be capitalized.

Even though house B has not yet sold, it does not follow that the TPs made a mistake by doing what they did. If house B does sell in time that the sellers still meet the 2-out-of-5 rule, it was a very good move on their part.