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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28082
Experience:  Taxes, Immigration, Labor Relations
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Can home improvements be deducted from capital gains tax if

Customer Question

Can home improvements be deducted from capital gains tax if you inherited the property and are selling it for more than it was appraised at. I have spent about $50.000 on the house and this would bring the property value up by a substantial amount.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Absolutely - yes.
The cost of home improvements is added to the property basis
and yes - will reduce capital gain on the sale of the property.
Expert:  Lev replied 1 year ago.
Inheritance itself is NOT taxable.
However the GAIN realized from the sale of inherited property is taxable.
That means - if the property is sold shortly after - there would not be an taxable gain.
However if the property value appreciated after it was inherited - the difference would be your taxable gain.
The gain is calculated as (selling price) MINUS (basis)
Expert:  Lev replied 1 year ago.
The basis is later adjusted - increased or decreased by certain items.
.
See following publication
http://www.irs.gov/pub/irs-pdf/p551.pdf
pages 4-5
Increases to Basis
-- You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use.
That is how the cost of improvements affects the basis and capital gain calculations.
Let me know if you need any help with reporting.