We sold our home last year after many decades of living in it. Even after applying the $500K married couple exclusion we have significant capital gains. This was our primary residence and never rented out.
We have reviewed many tax guides and publications including IRS Form 523, but are still confused over whether cost of painting and minor repairs prior to sale can be counted as expenses of sale.
Some sites say that painting and minor repairs can be counted as expenses of sale if incurred within 90 days of a sale. Other sites say painting expenses can be added to cost basis only if it is part of a home improvement which upgrades a home.
Thanks in advance for any clarification you can provide.
I claim no expertise in tax law and so I would wait for more knowledgeable people to chime in, but in the absence of something definitively one way or the other, Iād go with taking the deduction so long as you are doing it in good faith, i.e. you did it to improve the selling price and prospects of the property. If it was done the prior year? No. Within 90 days? Yes.
When I sold my house years ago with the same problem, the IRS book on sale of your home included new roof as an example of a remodeling expense that can be used to increase your cost basis. Yes, I would include painting, carpeting, and similar improvements for a sale.
Iāve seen a lot of online sites say this, but I have never seen them provide a citation from the IRS or a tax court case which supports their contention, even when Iāve asked for one.
Painting as a part of a large renovation/remodeling project can be included. But in general, painting is considered to be a maintenance item that does not add to the basis.
You can include repair-type work if it is done as part of an extensive remodeling or restoration job. For example, replacing broken windowpanes is a repair, but replacing the same window as part of a project of replacing all the windows in your home counts as an improvement.
Examples of improvements you CANāT include in your basis.
You canāt include:
Any costs of repairs or maintenance that are necessary to keep your home in good condition but donāt add to its value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware.
Any costs of any improvements that are no longer part of your home (for example, wall-to-wall carpeting that you installed but later replaced).
Any costs of any improvements with a life expectancy, when installed, of less than 1 year.
Exception.
The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition. However, you must adjust your basis by any amount of insurance reimbursement you receive or expect to receive for casualty losses. See Worksheet 2, line 5.
If you would feel comfortable representing to the IRS that your painting and minor repairs were part of an extensive remodeling or renovation, then you should include those costs in the basis. If you would not feel comfortable telling the IRS that they were, then donāt use them as a part of the basis.
The current āIRS bookā (Pub 523 2024 Publication 523) specifically calls out painting and repairs as non-allowed additions to basis unless they are part of an extensive remodeling or renovation, while allowing a new roof and new carpeting.
There is nothing that I have been able to find published by the IRS that provides a timeframe for maintenance and repairs prior to sale, so using a timeframe doesnāt change anything.
I remembered from decades ago that painting and repair costs within a certain period before the sale were considered allowable costs of sale. I remembered the period as 60 days. I could have used it in 1991 when selling a condo, but didnāt need to as I had a loss after settlement costs.
Apparently the Tax Payer Relief Act of 1997 changed it as well replacing the rollover of gains with the $250K/$500K exclusion.
I find it strange that home staging expense which amounts to hiring a decorator to place rental furniture is considered an allowable expense of sale, while painting isnāt.
Probably because if you were staying in the house you would not hire a decorator, but you would need to still paint your house, if it needed it. Of course many neglect ~normal maintenance when living in a house but do it when preparing to sell.
Some say audits of home sales are rare. Modest adjustment are likely to be ok. But of course big ones might draw attention.
Painting interior of my home last time was $2800. Iād be surprised at costs over $5k. New carpeting, same kinds of numbers. Kitchen or bathroom remodel could be bigger.
Itās not the cost that matters. Itās whether itās maintenance/repairs - like painting, or renovations/remodels - like new carpeting or kitchen remodel.
Taking that deduction is cheating on your taxes, especially when you know itās improper. So if you arenāt worried about losing sleep over taking an improper deduction, you do seem to be advocating for cheating on your taxes.
You claim the sale of your home on Schedule D without much documentation. IRS probably has ways to see what you received for your property at least from recorder of deeds records. And similarly they can probably learn what you paid for it.
I would guess they have internal guidelines on how much cost variation is allowed before it is questioned. A well informed CPA may very well know what that number is. If so, he/she can encourage you to claim that amount. For most of us $10K is probably allowed but $200K would be questioned.
None of that negates the fact that painting that is not part of a larger renovation/remodel project is specifically called out as a disallowed addition to the basis of a home:
You, @pauleckler, know that claiming painting is not allowed, but you keep trying to justify why it would be okay to claim it because you wonāt get caught.
I will say again - you, @pauleckler, are advocating for cheating on taxes.
No, but using expenses that are called out as excluded IS against the law. And you kept trying to justify using an expense that was called out as excluded on the premise that you wouldnāt get caught. Thatās advocating for cheating on your taxes.
@aj485 I have a related question. Are the fees paid to āstageā the home for sale something that can be deducted as an expense of selling the home (presumably like the commission paid to an agent, or the fees paid to an attorney)? If yes, then those staging fees might include the painting of the home so that it can be properly shown to potential buyers.