Tax deductions for home renovations done in 06?

[wilkens21]

hi everyone!

I just sold my home this year, and did full scale renovations of my old place back in 2006. Am I entitled to any kind of tax deduction - for this tax year - due to these renovations as I sold the house this year? Kept all the receipts and the renovations were about $30K.

If there is a link somewhere i can read about this, I'd appreciate it as I'm tax law dumb I confess.... thanks!

[LOL!]

You don't pay tax on the cap gains of selling your principal residence if you have lived in it for 2 of the last 5 years.

Lots of IRS tax publications are found here: Publications Online
Surely, one can help you.

[wilkens21]

thanks for responding as i definitely know about the capital gains rules (2 out of 5 years of residence, which i'm qualified for). I rented out the home for a couple of years after the renovations (again done in '06)...but i thought I could get something in terms of deducting the renovations expenses (up to some certain amount maybe?), in the year I sell the property.... that's the question.

[kaneohe]

try this: Selling Your Home - Capital Gains Tax on the Sale of a Main Home

The improvements add to basis and so reduce your gain (kind of like a deduction). Depending on how large your gain is, this may or may not be a benefit to you. You should also check current yr IRS pub to be sure this info is up to date.

[LOL!]

Since home was rented for a couple of years from 2006 to 2008, the taxes get trickier, don't they? You need to consult a book on taxes for property owners and landlords. Maybe some landlords will chime in here, but you should probably present more facts, such as when you lived in the home, when you rented it out, how you filed your Schedule E to declare rental income, did you depreciate the property, are you recapturing depreciation, how much you spent on renovations, when you moved back into the property, etc.

[wilkens21]

Hmmm..... i declared the rental income for 2007 and 08 on my taxes the past 2 years and they were taxed at my income rate. my attorney calculated depreciation for me and i wrote off things like the monthly maintainance/property taxes so I "think" i'm free for the tax burden for the rental stuff.

Renters moved out this year, and I had to sell the property (never moved back), but still qualify for the capital gains exemption because I did live there long enough to qualify for the 2 out of 5 years home owner's tax clause (lived there from about 1999 to 2007).

About $30K was spent on the renovations back in 2006 with the intention of course of those renovations helping out with the re-sale value of my old place.

The question is, I have all the contractors charges, home depot receipts, etc...and am wondering in the myriad of our tax laws on what to do...will consult an attorney as well i guess.

[kaneohe]

Calculating Your Cost Basis and Capital Gain

Just like calculating capital gains, the formula for calculating the gain or loss involves subtracting your cost basis from your selling price.
The formula for calculating your cost basis on your main home is as follows:
Purchase price
+ Purchase costs (title & escrow fees, real estate agent commissions, etc.)
**
************************************************* ** RENOVATIONS
+ Improvements (replacing the roof, new furnace, etc.) ******************
************************************************** ** RENOVATIONS
**
+ Selling costs (title & escrow fees, real estate agent commissions, etc.)
- Accumulated depreciation (for example, if you ever took the office in the home deduction)
= Cost Basis

And then calculating your profit or loss would be:
Selling price
- Cost Basis
= Gain or Loss
If the resulting number is positive, you made a profit when you sold your home. If the resulting number is negative, you incurred a loss.
Finally, calculate your taxable gain:
Gain
- Maximum or Partial Exclusion
= Taxable Gain

[wilkens21]

thanks folks!

yeah it's clearer to me now....the renovations need to be added to my cost basis (when i bought the home), and is calculated from the selling price, but since I didn't make over 500K, it's basically moot, which is a bummer. Meaning, the 30K I put into the renovations doesn't do squat....what I should've done was perhaps file it back in 2006/2007 as part of the rental write-offs and mention that it was supposed to help with renting the property...that would have been ok (I think) with the IRS....

Wish the tax laws were clearer ....and understandable to the ordinary Joe like me...

[kaneohe]

I think you got it now. Not sure you could do what you're thinking (please verify to be sure) . I think you can deduct repairs but improvements/renovations I believe need to be capitalized and depreciated like the rest of your basis. If you decide otherwise and believe it, there's always amended returns but the clock would be close to running out if it hadn't already.