Is it possible to write-off repair expenses on a sold home?

Question

Sold my home FSBO, the buyer wanted help paying for repair work needing to be done that came up on inspection report. This was not listed in our closing contract.

I don't mind splitting the cost of the repair by paying the contractor directly, but have tax concerns. Because this was not listed on the closing contract, it will look like I made more money from the sale than I actually did.

The sale closed on 4/29. I know I am in no way legally responsible to pay for the work to be done, but in the interest of being a decent human I agreed to pay some of the repair cost as long as there is a way to navigate the tax implications. Any tax experts know how or if it is possible to write off the repair cost? A lender told me I could have the contractor write me up a separate invoice for the amount I agreed to pay, and document well the address and reason for paying the repair costs, and then I could write it off. Hoping to gain some more information.

Thanks!

Aaron Zimmerman · Answer

In addition to the above, maybe get something from the buyer that's signed to document the purpose of the repairs post close. For example, if they were going to threaten legal action against you, you could argue that it was a necessary cost to incur.

Jason Malabute · Answer

If repairs were done after closing and not listed on the settlement statement, they generally aren’t deductible. But if they were part of the sale negotiations and well-documented (inspection reports, emails, contractor invoice), your CPA may be able to treat them as a basis adjustment to reduce your capital gain. Ideally, they should’ve been listed on the closing disclosure. Since they weren’t, strong documentation is key.

Ashish Acharya · Answer

@Anthony Pollachioli Good on you for wanting to do right by the buyer, but you're correct to be cautious from a tax perspective. Since the repairs were not part of the closing statement, and you're paying post-sale, it’s not considered a selling expense and therefore not deductible from your capital gains by default.
However, there’s still a path forward:
If the work was clearly tied to the sale (i.e., part of negotiations due to the inspection), and you document it thoroughly including inspection report references, emails agreeing to the split, and a contractor invoice that lists the property address and repair purpose, your CPA may be able to treat it as a capital improvement or adjustment to basis, reducing your taxable gain.
The cleanest approach would have been to list the seller-paid repairs on the closing disclosure or offer a credit at closing, which would have clearly reduced your net proceeds.
Since that didn’t happen, you’ll need to provide strong supporting documentation and have your CPA make a reasonable case to the IRS if questioned.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Kevin Aumack · Answer

Hey Anthony,

Since the sale has been closed, I would get an invoice for the work done and document the communication of the agreement to split the costs. You can then provide this information, along with the original closing document, to you accountant. Your accountant should then be able to make a manual adjustment in their tax software for this work.

However, was this your primary home? If so, the repair expenses may make little difference in end anyway since you are allowed capital gains exclusion (250k single, 500k joint).

Hope that helps!

Kevin Aumack · Answer

Yes you would be able to write that off. There are several rules (as always), but mainly if you lived in your house for 2 out of 5 years you're good to go! For simplicity, lets say you bought the house 20 years ago for 100k, now you sold for 250k, thats a 150k capital gains exclusion, which is well within the 250k limitation so you would have plenty of room and there would be no tax due on the sale. Most states follow this exclusion as well, but there may be some differences depending where you live.

Anthony Pollachioli · Answer

Yes actually this was my primary home. I didnt know about this exclusion, the home was sold for right around that amount also. So if filing single, I can write off 250k for the sale of a primary home?

Ying Tang · Answer

@Anthony Pollachioli You can probably try amend the closing document. But my suggestion would be not paying for the repairs. It does not make you less decent as a human being. These things should be handled before closing. There are a lot of chances for the buyer to ask for that credit but they choose to do it after closing.
What if you agreed to the repair cost and then buyer asks for something else?

Is it possible to write-off repair expenses on a sold home?

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