I inherited a home and made improvements. May I adjust the tax basis?

April 29, 2015 by Dave Du Val, EA
Two men fixing a roof

Hey Dave,

I have a question for you that I have been getting conflicting opinions on. I inherited a home in 1988 from my father. I sold that home during the 2014 tax year at a gain. I understand that this property is considered an "investment property" for tax purposes but my question is this:

I did considerable renovations on this property (new roof, new windows, etc., and have the receipts) to the tune of about 26K. Can I or can't I use the amount of improvements made (26K over 10 years) to the property to increase the adjusted basis on this home?

I have been told that IF the home was "purchased,” then, YES; but since the home was inherited, I MAY NOT use the amount of improvements to adjust the basis of this home!

I am in the middle of filing right now and could sure need your thoughts on this if you have a minute.

Thanks in advance, Dave. Your input is greatly appreciated!

Ted

 

Ted

Good question, and the answer is: Yes, the cost of renovations are improvements, and such costs paid by you after you inherited the home are added to your basis in the property. The costs of any improvements made by your father prior to his passing would not be an adjustment to your basis in the property, but they would be part of the calculation of your father’s basis.

Assuming there was no rental use of the property, your cost basis in the property on sale will generally be the fair market value of the property on the date of the death of your father, plus the costs of any improvements, plus or minus other adjustments, if any, plus the cost of the sale.

Deductibly Yours,

Dave

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David E. Du Val, EA
Chief Compliance Officer for TRI Holdco

 

Dave Du Val, EA, is Chief Compliance Officer for TRI Holdco. Inc., the parent company of TaxAudit, and Centenal Tax Group. A nationally recognized speaker and educator, Dave is well known for his high energy and dynamic presentation style. He is a frequent and popular guest speaker for the California Society of Tax Consultants, the California Society of Enrolled Agents and the National Association of Tax Professionals. Dave frequently contributes tax tips and information to news publications, including US News and World Report, USA Today, and CPA Practice Advisor. Dave is an Enrolled Agent who has prepared thousands of returns during his career and has trained and mentored hundreds of tax professionals. He is a member of the National Association of Tax Professionals, the National Association of Enrolled Agents and the California Society of Enrolled Agents. Dave also holds a Master of Arts in Education and has been educating people since 1972. 


 

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