Sale of the house

[avatar]

Lady had her return prepared by volunteer. (free service)
She sold her house in October 2007. (single, no step-up basis)
House was bought in 1970 for $29.000. Sale price $616,000.
Prior to sale, she fixed it. Improvements around $50,000.
Sale commissions were close to $37,000
After talking to her, I learned that she had her roof done 4 times it those 37 years, fence 3 times and of’ course many more things, like heater, etc… She doesn’t have any receipts saved.
I just wonder how would you handle this return.
At the end she end up paying capital gain on $250,000. Is their anything one could do for this person?
The lady is 91 years old, very nice. She already sent the checks to gov.
I just wanted to help her. She can obviously use the money and I bet she will spend it better than gov.

Appreciate any feedback.

[Jesse]

Without receipts I don't know that you could have handled it any different. Look at the flip side, it would have been worse had she not had the $250,000 exclusion and 15% LTCG cap she would have paid much more.

I try to stress to my clients that you should always keep your home improvement receipts because you never know when you might need them. You may decide at some point to turn your home into a rental, home office, sell the home you said you never would or the laws may change. You just never know what tomorrow will bring.

[Donald Rihn, EA]

Some would be repairs

Wouldn't some of those expenses be considered just ordinary repairs and maintenance and that wouldn't add anything to the basis of the house?

[dyne]

sale of the house

Only the most recent roof and fence repair would be added to basis.
I find it interesting that some time ago IRS advised that it was NOT necessary to
keep records of the cost and improvements to one's personal residence.

[FEDUKE404]

Improvements & cost basis

Only the most recent roof and fence repair would be added to basis.
I find it interesting that some time ago IRS advised that it was NOT necessary to
keep records of the cost and improvements to one's personal residence.

Agreed on the roof issues.

I find it hard to believe IRS would make such a statement. My guess is it was more along the line of "not necessary for most people" etc. Also, I wonder where she came up with "$50k of improvements."

Too bad this lady did not talk to an attorney first. With a little advance planning, there probably were all kinds of options to avoid sending $250k to the IRS.

Unfortunately, "that cow is already out of the barn" applies here.

FE

[gkaiseril]

Only the most recent roof and fence repair would be added to basis.
I find it interesting that some time ago IRS advised that it was NOT necessary to
keep records of the cost and improvements to one's personal residence.

One must not include repairs only complete new items or upgrades. If the entire fence and supports are removed and replaced it is a new fence no matter how many times it was done during the ownership period. Anything less is a repair. As for the roofing, the "new" roof is the complete removal of all roofing cover (shingles, tarpaper, tar, gravel. tiles, etc) down to the sheathing and the repairing of the sheathing and rafters as needed and the applying of new roofing material. Covering with tarpaper and new shingles, gravel, etc. is just a repair. The same reasoning would apply to all major components of the house. Because all the upgrades or new components replacing damaged components were needed to get the house to its present condition and they all should be included. This could include new bathrooms, kitchens, wall to wall tack down carpets, furnace, new windows and doors, etc.

[BOB W]

Generally speaking, once a home sale is reported on a tax return, it is better to leave well enough alone. Any amendments would require all receipts to prove basis. One may get away without receipts on an amended but it would sure open up a potential mail/line audit.

[joanmcq]

I computed she paid about $37500 to the IRS. She still got to keep over a half mill. don't feel too sorry for her.

[Kram BergGold]

gkeiseril I disagree

If you replace the roof, or a bathroom, or a kitchen 3 times only the expense of the last replacement counts. This has nothing to do with repairs vs improvements. It has to do with the fact that the first two improvements are no longer there and therefore have no value. Look it up, I know I have read this somewhere.

[gkaiseril]

If you replace the roof, or a bathroom, or a kitchen 3 times only the expense of the last replacement counts. This has nothing to do with repairs vs improvements. It has to do with the fact that the first two improvements are no longer there and therefore have no value. Look it up, I know I have read this somewhere.

If there is a full replacement of a roof 3 times is needed, say blown off by a tornado or hurricane, and only the last one counts, why fix it at all? Just wait until a year before you sell the house, never mind that the interior and flooring structure will not stand up to the weather.

As I pointed out there is a difference between fixing only a portion and a full tear off of a all roofing material. Most homes with shingle roofs are just recovered with tarpaper and shingles and that is a repair since there is no tear off of the older roofing material just covering it over. A house with a shingle roof can have 3-4 layers of roofing material or 2-3 repairs to an original roof before everything has to be torn off. So with the covering of the original shingles with new shingles means the original roof is still there and still subject to depreciation. So an original roof lasting 15 years and being recovered 3 times each with a 15 years of life means the original roof could be on the house as long as 60 years.

As for a kitchen or a bathrooms, there is a difference between replacing sinks, counters, toilets, refacing cabinets, and replacing individual compents versus tearing out everything to the sub flooring and rebuilding the entire room.

But as has been already pointed out, ammending the return will be an uphill battle. But I am just pointing out that one should understand there is a difference between a what a roofer calls a new roof and what the taxman considers a new roof.