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I understand that when paying capital gains on selling a home you deduct the sale price from your basis which is as follows:

Purchase price
+ Purchase costs (title & escrow fees, real estate agent commissions, etc.)
+ Improvements
+ Selling costs
- Accumulated depreciation
= Cost Basis

Do the improvements have to be adjusted to your property tax basis to qualify or can they be unpermitted work such as new doors and fixtures, new floors, countertops, etc?

Thanks,
Palbir
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Improvements have to be able to be proven by paper trail (such as receipts).

Cheers,
Raladic
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Do the improvements have to be adjusted to your property tax basis to qualify

No.

or can they be unpermitted work such as new doors and fixtures, new floors, countertops, etc?

Yes.

And having read your related question on another board, also keep in mind that your principal residence will qualify for an exclusion of $250k of gain ($500k if you're married) providing you have owned and used it as your principal residence for at least 2 out of the 5 years before selling. So your 2011 purchase should qualify at this point.

That can make many questions about improvements unimportant. If the entire gain would be excluded without considering any improvements, worrying about documenting and including improvements is unnecessary.

--Peter
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Good eye Peter on the other board. I'm actually working on an analysis on my return if I kept the home as a rental. One of the benefits of selling today is the tax ememption but if I hold on for long enough, I'll lose that exemption.
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I'm actually working on an analysis on my return if I kept the home as a rental. One of the benefits of selling today is the tax ememption but if I hold on for long enough, I'll lose that exemption.

I offer off the bat a caveat. I haven't done much thinking through on this since I wouldn't be a landlord again--and I had great tenants--on a bet.

I've got this feeling banging around in my head that you're overemphasizing tax analysis if you're trying to choose between selling the property and becoming a rental real estate investor. If this is a long-term proposition the exclusion of gain from sale of a personal residence is moot, so move on and stop thinking about it. There are other avenues available for deferring tax recognition of the gain on rental properties if you decide it's time to look at other income-producing property. Play them out long enough (until your dirt nap) and all the gain magically disappears for your heirs.

Phil
Rule Your Retirement Home Fool
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That can make many questions about improvements unimportant. If the entire gain would be excluded without considering any improvements, worrying about documenting and including improvements is unnecessary.

But one never knows where one is headed in the future, and that primary residence may very well be put into rental service. At that point, it is near impossible to retrieve any receipts you have not kept or even organized.

IP
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