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Jesse Handel
Jesse Handel, Scientist
Category: General
Satisfied Customers: 309
Experience:  B.S. Degree Chem. & Bact. 10 yrs tax preparation.
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I have a rental house which my daughter rents from me. She

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I have a rental house which my daughter rents from me. She pays rent in the form of the Mortgage payment. I report those payments as rental income on my taxes. We have an agreement that any remodeling, facelifts, etc. she will pay for and when I sell the house I will repay her the expense of those items. Can I deduct any of those costs, such as a complete kitchen makeover, as expenses since I owe her for them?
Submitted: 6 years ago.
Category: General
Expert:  Jesse Handel replied 6 years ago.
Hello and thank you for coming to Just Answer. We appreciate the opportunity to help you with your questions. Your payments to your daughter for home improvements will be treated by the IRS just the same as if you paid a contractor directly for them. The rule on home improvements is that if a home improvement is major enough to add to the price you receive for the house (such as a complete kitchen makeover), you will be allowed to add the cost of the home improvement to the amount that you originally paid for the house when you calculate the amount of profit you earned from the sale. An item that is considered maintenance and doesn't change the selling price of the home, such as a new roof, can't be deducted in any fashion. You need to ensure that you receive receipts from your daughter for contractors, labor, and materials paid for home improvements because the IRS may demand to see receipts proving the cost of the improvement and that it was actually performed.

I hope this answers your question. Please let me know if you need more information or clarification of anything discussed.
Customer: replied 6 years ago.
So I can deduct the amounts (receipts and invoices,etc.) in the year they were presented to me and to be paid at the time the house is sold?
Expert:  Jesse Handel replied 6 years ago.
Hello again. No, you will just keep all of the receipts and invoices and when you sell your house at sometime in the future you will have to figure out the amount you paid for the house originally, then you will add in the amounts from the receipts and invoices for the home improvements, and then you will deduct that amount from the amount you received from selling the house. That will determine how much profit you made from the house and how much tax you have to pay on the profit or if you have to pay any profit at all. You won't really deduct the home improvements like you deduct other expenses, you just use it to increase the price you originally paid for the house so that the amount you earned from the sale goes down.
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