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Old 02-22-2015, 03:09 PM
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Question About Recent Home Sale

I recently sold my home. The profit before deductions is $325,000. After the $250,000 exclusion, I am left with $75,000. Deductible closing costs are about $40,000, leaving $35,000. My question is about capital improvement deductions. We did a major renovation of an older home; the total cost was approx. $350,000, of which close to $200,000 were deductible improvements. Obviously this more than covers the 35K, but what about the remaining $165,000? Do I get any tax benefit, or is there any way to deduct the remaining amount?

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Old 02-22-2015, 06:10 PM
Join Date: Oct 2010
Posts: 5,236
Nondeductible $165K was added to the basis of the home sold; these expenditures cannot generally be deducted all in the first year. Instead, the IRS does not consider these costs to be business expenses, deductible as you pay them. Instead, the IRS considers these expenditures to be capital investments and subject to a different set of rules: You must generally spread these deductions out over the probable useful life of the property in a process called depreciation. By spending the $165K, you have increased your tax basis in the property by the same amount.as you use your home purely as your personal residence, you cannot deduct the cost of home improvements. These costs are nondeductible personal expenses.

However, this doesn't mean that home improvements do not have a tax benefit. They can help reduce the amount of taxes you have to pay when you sell your home at a profit. This is because the cost of home improvements are added to the tax basis of your home as said above. Basis means the amount of your investment in your home for tax purposes. The greater your basis, the less profit you'll receive when you sell your home

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