"fixing-up" expenses prior to home sale
J.Mi...@zippo.com
home within 30 days prior to sale can be considered as
selling expenses (and there4 deductible in calculating the
capital gains). Is that still true?
If yes: What happen if I spend money to "dress-up" the home
before listing the home for sale; and it takes 60 or 90 days
before contract is signed? Are those expenses still
deductible?
And what is considered as the date of sale -- contract or
closing?
TIA
Jim Davidson
> I vaguely recall that expenses incurred in "fixing-up" a
> home within 30 days prior to sale can be considered as
> selling expenses (and there4 deductible in calculating the
> capital gains). Is that still true?
>
> If yes: What happen if I spend money to "dress-up" the home
> before listing the home for sale; and it takes 60 or 90 days
> before contract is signed? Are those expenses still
> deductible?
Um... I haven't looked at the law lately. However, you may
be thinking of the law as it previously existed (before the
1997 changes).
Under the old system, fix-up expenses such as painting
(which are not otherwise deductible) could be used to reduce
the amount of the gain that you had to recognize in the year
of sale. This was in the days when you could "roll over" to
another house to escape taxes.
Since the whole rollover system has gone away, I expect that
the special treatment of fixup expenses has done likewise.
Of course, you now have $250/500k of CG tax-free :-)
Note that investment property is subject to different rules;
the expenses are deductible, but you don't get the CG
exemption.
-Jim
Edward Zollars
> I vaguely recall that expenses incurred in "fixing-up" a
> home within 30 days prior to sale can be considered as
> selling expenses (and there4 deductible in calculating the
> capital gains). Is that still true?
The old "fixing up" expense rule came into play primarily in
computing amounts that had to be reinvested under old (now
repealed) Section 1034. It really doesn't matter at this
point, since Section 1034 is gone.
If the expenses are properly allocable to basis or are an
expense of sale, they will reduce your gain no matter when
incurred. However, realize that the new provisions in the
law make it a moot point in most cases (the new $250K/$500K
gain exclusion).
---
Ed Zollars, CPA Phoenix, AZ
ezo...@primenet.com
http://www.getnet.com/~hmtzcpas
Frederick E. Jorden
> J.Mi...@zippo.com writes:
>> I vaguely recall that expenses incurred in "fixing-up" a
>> home within 30 days prior to sale can be considered as
>> selling expenses (and there4 deductible in calculating the
>> capital gains). Is that still true?
>>
>> If yes: What happen if I spend money to "dress-up" the home
>> before listing the home for sale; and it takes 60 or 90 days
>> before contract is signed? Are those expenses still
>> deductible?
> Um... I haven't looked at the law lately. However, you may
> be thinking of the law as it previously existed (before the
> 1997 changes).
>
> Under the old system, fix-up expenses such as painting
> (which are not otherwise deductible) could be used to reduce
> the amount of the gain that you had to recognize in the year
> of sale. This was in the days when you could "roll over" to
> another house to escape taxes.
>
> Since the whole rollover system has gone away, I expect that
> the special treatment of fixup expenses has done likewise.
> Of course, you now have $250/500k of CG tax-free :-)
>
> Note that investment property is subject to different rules;
> the expenses are deductible, but you don't get the CG
> exemption.
While it is not possible to prove a negative, I think the
only change was the exemption from taxation of small gains
on sales of a primary residence, up to $500,000. almost all
of the old rules apply to other sales of real estate!
--
Frederick E. Jorden http://fejcpapc.com/
Frederick E. Jorden, CPA PC
10049 Midlothian Tpk - 2-H Richmond, VA 23235 EMAIL fej...@erols.com
(804) 320-6210 FAX (804) 320-6211
A.G. Kalman
> I vaguely recall that expenses incurred in "fixing-up" a
> home within 30 days prior to sale can be considered as
> selling expenses (and there4 deductible in calculating the
> capital gains). Is that still true?
>
> If yes: What happen if I spend money to "dress-up" the home
> before listing the home for sale; and it takes 60 or 90 days
> before contract is signed? Are those expenses still
> deductible?
>
> And what is considered as the date of sale -- contract or
> closing?
Fixing-up expenses were relevant under the old rules for
sale of a personal residence. They were not capital
expenditures or improvements that increased the cost basis,
nor were they selling expenses that decreased the amount
realized. In other words, they were items of expense
(decorations and repairs) that were only used to determine
how much of a gain was taxable in the year of sale when a
replacement residence was obtained. They were not used to
determine the actual gain on the sale. (This can clearly be
observed by looking at the Form 2119.) Therefore, by
definition they would not be a factor in computing your gain
on the sale of a residence under the new rules. (Note also,
that under the old rules, these expenses had to have
occurred within 90 days of the signing of the contract and
had to have been paid within 30 days of the sale (closing).)
From a tax point of view (what is the gain on sale), there
is no such thing as fixing-up expenses any more. A taxpayer
should properly qualify one's expenditures on their personal
residence as either: 1. improvements that increase basis, 2.
expenses incurred as a cost of sale, or 3. repairs.
--
Alan
My home page provides a variety of help and
information on tax related subjects.
http://pages.prodigy.net/agkalman/
J.Mi...@zippo.com
> J.Mi...@zippo.com wrote:
> .............................
> realized. In other words, they were items of expense
> (decorations and repairs) that were only used to determine
> how much of a gain was taxable in the year of sale when a
> replacement residence was obtained. They were not used to
> determine the actual gain on the sale. (This can clearly be
> observed by looking at the Form 2119.) Therefore, by
> definition they would not be a factor in computing your gain
> on the sale of a residence under the new rules. (Note also,
> that under the old rules, these expenses had to have
> occurred within 90 days of the signing of the contract and
> had to have been paid within 30 days of the sale (closing).)
> From a tax point of view (what is the gain on sale), there
> is no such thing as fixing-up expenses any more. A taxpayer
> should properly qualify one's expenditures on their personal
> residence as either: 1. improvements that increase basis, 2.
> expenses incurred as a cost of sale, or 3. repairs.
Does that mean that if my broker suggest that I repaint the
house, etc. prior to "listing" -- to expedite the sale or to
get a better price -- that would be a legitimate cost of
sale -- even if it takes more than 90 days to sign a
contract?
TIA
Jim Davidson
A.G. is right. Painting is generally considered
maintenance, not a capital improvement, and not a selling
expense. Therefore, the cost of painting isn't deductible
in any way from your gain.
This assumes we're discussing sale of a personal residenced.
-Jim
Jim Davidson
>>> I vaguely recall that expenses incurred in "fixing-up" a
>>> home within 30 days prior to sale can be considered as
>>> selling expenses (and there4 deductible in calculating the
>>> capital gains). Is that still true?
>>>
>>> If yes: What happen if I spend money to "dress-up" the home
>>> before listing the home for sale; and it takes 60 or 90 days
>>> before contract is signed? Are those expenses still
>>> deductible?
>> Um... I haven't looked at the law lately. However, you may
>> be thinking of the law as it previously existed (before the
>> 1997 changes).
>>
>> Under the old system, fix-up expenses such as painting
>> (which are not otherwise deductible) could be used to reduce
>> the amount of the gain that you had to recognize in the year
>> of sale. This was in the days when you could "roll over" to
>> another house to escape taxes.
>>
>> Since the whole rollover system has gone away, I expect that
>> the special treatment of fixup expenses has done likewise.
>> Of course, you now have $250/500k of CG tax-free :-)
>>
>> Note that investment property is subject to different rules;
>> the expenses are deductible, but you don't get the CG
>> exemption.
> While it is not possible to prove a negative, I think the
> only change was the exemption from taxation of small gains
> on sales of a primary residence, up to $500,000. almost all
> of the old rules apply to other sales of real estate!
The original poster mentioned "fixup" expenses. That was a
specific provision, related to sale of a personal residence,
in conjunction with the rollover replacement rule.
So, the rules applying to other real estate sales aren't
relevant here.
-Jim
BSchmugge
> house, etc. prior to "listing" -- to expedite the sale or to
> get a better price -- that would be a legitimate cost of
> sale -- even if it takes more than 90 days to sign a
> contract?
No. It is my understanding that painting is routine
maintenance and not an improvement. Only improvements are
allowed to be added to basis in determining gain. "Fixing
up expenses" (which would include painting) are not allowed
in calculating gain in the new rules. Even if you look at
the old rules selling expenses were added to basis on top of
form but "fixing up expenses" were used on bottom part of
form to reduce gain already calculated on top.
Brad L. Schmugge, C.P.A.
Anderson, Kuiti & Asuma, CPAs
Duluth, Minnesota
BSch...@aol.com
"A room without books is like a body without a soul." - Cicero
J.Mi...@zippo.com
>> Does that mean that if my broker suggest that I repaint the
>> house, etc. prior to "listing" -- to expedite the sale or to
>> get a better price -- that would be a legitimate cost of
>> sale -- even if it takes more than 90 days to sign a
>> contract?
> No. It is my understanding that painting is routine
> maintenance and not an improvement. Only improvements are
> allowed to be added to basis in determining gain. "Fixing
> up expenses" (which would include painting) are not allowed
> in calculating gain in the new rules. Even if you look at
> the old rules selling expenses were added to basis on top of
> form but "fixing up expenses" were used on bottom part of
> form to reduce gain already calculated on top.
Just so we don't get weighted down by terminology, let me
ask the question another way.
If I expend money to dress-up my personal residence in an
attempt to get a better sale price, is that expenditure
deductible -- in one form or another --in the calculation of
the net gain or loss on the sale ??
There is a general assumption here that the sale of
residence is generally not taxable because of the $250/500K
exemption. Would the answer be different if part of it is
taxable?
My layman's impression, in a very broad generalization, is
that any reasonable expense incurred in the process of
generating an income (be it ordinary or capital) is
deductible. Is the above situation an exception to the
general rule?
TIA
P.S. Painting is just one example of "dressing-up"
expenses. Painting is a maintenance expense while one is
living in it. But is it still a maintenance expense if I
had painted two years ago, and wouldn't have painted again
if it weren't for the sale?