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We just sold our principal residence (of 28 years!) at a healthy profit and will use the $500,000 exclusion. Can I still use fixing -up expenses as part of the selling expenses, which are deducted from the selling price? Also, can I add as part of the adjusted basis those closing costs associated with refinancing specifically done for the purpose of additions/remodelling of the home?

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<< We just sold our principal residence (of 28 years!) at a healthy profit and will use the $500,000 exclusion. Can I still use fixing -up expenses as part of the selling expenses, which are deducted from the selling price? Also, can I add as part of the adjusted basis those closing costs associated with refinancing specifically done for the purpose of additions/remodelling of the home? >>

I'm not quite sure what you're asking. Allowable expenses of sale deduct from your selling price and financing costs add to your basis. However, all this is moot if the bottom line is less than a $500,000 gain (on a joint return).

If you do have a taxable gain, all allowable expenses are still allowed in calculating the gain. There is no separate deduction for such expenses.

If this doesn't cover it, please clarify.

TMF ExRO
Phil Marti
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Phil,

Yes, our gain is over $500,000.

The IRS documents I've seen that relate specifically to the $500,000 exclusion do not say anything about fixing up expenses (the earlier rules do). That's why I asked the question.

Regarding the REfinancing costs associated with remodeling/additions, the IRS does not say anything about them, only referring to closing costs of initial purchase or sale. Is it common practice that the IRS does allow basis addition of refinance costs if associated with remodels?

Thanks,
Bob
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The IRS documents I've seen that relate specifically to the $500,000 exclusion do not say anything about fixing up expenses (the earlier rules do). That's why I asked the question.

Regarding the REfinancing costs associated with remodeling/additions, the IRS does not say anything about them, only referring to closing costs of initial purchase or sale. Is it common practice that the IRS does allow basis addition of refinance costs if associated with remodels?


You are probably better off looking up Additions to Basis. Fix up expenses are allowed as a deduction from the sales price. In addition, you can take certain costs of refinancing as long as the funds went to remodeling/additions as well as the remodeling and addition(s) themselves. If only part of the money went to remodeling/additions, then you would prorate the costs. There are no rulings that I am aware of that change the way IRS views personal residence selling costs or additions to the basis.
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<< The IRS documents I've seen that relate specifically to the $500,000 exclusion do not say anything about fixing up expenses (the earlier rules do). That's why I asked the question. >>

IIRC, fix-up expenses did not add to basis even under the old rules. They affected the amount realized from the sale, which affected how much the new residence had to cost for full deferral of the gain, but they did not add to basis and, therefore, did not affect the gain. Clear? IOW, no. These are repairs that don't add to basis.

<< Regarding the REfinancing costs associated with remodeling/additions, the IRS does not say anything about them, only referring to closing costs of initial purchase or sale. Is it common practice that the IRS does allow basis addition of refinance costs if associated with remodels? >>

As I read Pub 523, costs of financing do not add to basis. (Financing costs that amount to interest are deductible as such.)

TMF ExRO
Phil Marti
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<<<<"IIRC, fix-up expenses did not add to basis even under the old rules. They affected the amount realized from the sale, which affected how much the new residence had to cost for full deferral of the gain, but they did not add to basis and, therefore, did not affect the gain. Clear? IOW, no. These are repairs that don't add to basis.">>>>

Does not the last sentence highlight the real issue? "Fix-up expenses" sounds like a colloquial usage to me and could be describibg either repairs (which would not add to basis) or capital improvements (which would add to basis). I am especially concerned about this distinction, in this instance, because the original poster also mentioned remodelling/additions.

To the resident pros, espcially TMFexRO and RooCat, would it be more helpful if the original poster was a little more detailed in actual description of work done, or am I just confused?

Regards, JAFO



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I find it hard to believe that someone faced with the difficult task of having over a 500k gain on the sale of their property would not consult their tax advisor BEFORE selling the property. The details being discussed are important. They are important enough to make the professional fee insignificant relative to the gain.

BRG
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Dear JAFO, et al:

Thanks for your comments. I have carefully made a distinction when categorizing the various expenses between capitalizable expenses, like adding a new fence, and pure fix-up expenses, like painting the house interior in the 90 day period before close of escrow. I was just concerned that I did not see fix-up expenses referred to in the IRS publications when the $500,000 exclusion is used. From what everyone is saying, it appears that fix-up expenses (i.e., repairs done within the 90 days before closing escrow) are considered a selling expense and adjust the selling price downward.
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<< From what everyone is saying, it appears that fix-up expenses (i.e., repairs done within the 90 days before closing escrow) are considered a selling expense and adjust the selling price downward. >>

That is exactly the opposite of what I am saying. I say if they're repairs, not capital improvements, they don't affect your gain regardless of when they were done.

At this point I can't remember who was the origianl poster and who suggested what, but if the original poster would list the items in question--as someone suggested--we could offer opinions about whether or not they affect the gain. Might as well include dates--including the date of sale--even though *I* don't think they're important. (There was that time back in '55 when I was wrong about something <g>.)

TMF ExRO
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