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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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How to list cost of repairs to get a tax deduction?

Resolved Question:

How do I list the cost of repairs to a house to prepare it for a land lease sale in order to get a tax deduction?

Submitted: 6 years ago.
Category: Tax
Expert:  Stephen G. replied 6 years ago.

Is the house your personal residence or is it rental property or property held for investment?

What have you done for income tax reporting in the past? Where did you deduct the real estate taxes, Schedule A or Schedule E?

What is the nature of the "repairs", and when are they being done?

What are the terms of the "land lease sale"?

Customer: replied 6 years ago.

This is a personal homeowner's house. We downsized to a garden home in 2009. We made repairs and upgrades where necessary as required by house inspector. We could not find a buyer who could get a loan, and we changed the terms to a land lease sale. We financed the house, title will remain in our name for five years or until the purchaser completes the loan payment or contract. This was not done by us in the past. This is our first venture. Expenses are painting, plumbing, carpentry and labor to correct these deficiencies. The house was vacant for seven months 2009, and we had to keep the utilities on the house these seven months. The terms of the land lease sale were a down payment of $15,000.00 with $900.00 for 20 years to satisfy the loan.

Expert:  Stephen G. replied 6 years ago.

As a "sale" of a personal (principal) residence, there is no deduction for these expenditures. The repairs, painting etc., would either be "fixing-up expenses" (done within 90 days leading up to the "sale" & paid before 30 days after the sale) or improvements or in the case of utilities personal expenses. The former being either subtracted from the selling price as selling expenses or added to the cost basis of the property. Since it appears that the sale wouldn't be taxed as it was the sale of a personal residence & would fall under the exemption amount, any adjustment would make no difference.

Fixing-up expenses

Expenses that you incur to physically prepare your home for sale. Fixing-up expenses include repairs and decorating that make the home more saleable but do not include improvements, such as room additions or major remodeling. You subtract fixing-up expenses from the amount you realize from the sale. With the new exclusion for most gains from home sales, fixing-up expenses are not usually as important as they were under the old rules."

Customer: replied 6 years ago.

Our property did not sell in 2009, however it did sell to a party if we agreed to land lease sale and finance the contract, or loan on the property with new buyer. The lease sale contract was completed in February by our attorney, Bone Reality, and the new buyer. The question is, can we take the expenses that occurred in 2009 as we made improvements to make the house sellable? The house did not sell until 2010; we cut the price and agreed to a down payment of $15,000. Approximately $8,000.00 went to the realtor agent fee, plus the attorney fee for preparing the legal documents covering final settlement. This included the seller incurring the expense to be responsible for accomplishing the repairs, as well as payment for the repairs completed in 2009, but the house actually sold in Feb. 2010. Also, we as sellers received 20-year mortgage on balance to be paid monthly. 2009 is the year in question for tax credit.

Expert:  Stephen G. replied 6 years ago.

The only "deduction" comes as a reduction of the capital gain in the year of sale. See previous answer re additions to cost basis of the property or fixing up expenses as selling expenses, along with the realtor agent fee & attorney fees; None of this makes any difference if there is no capital gain that is taxable. There is no deduction for 2009 for anything except possibly any real estate taxes you paid in 2009, as they would have been anyway.

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