Sale tax includes rehab costs??

3 Replies

I have read many articles about the taxing of your property, depreciation etc.

One thing that is lacking everywhere is when you sale your home does the IRS include your rehab cost in the calculations?

For example:

I bought a home in 50K

I rehabed it in another 20K

after more then a year I sell the property in 90K

So:

1) I get taxed on my: 

90K

- 50K (initial purchase price)

- 20K (rehab cost)

= 20K (total profit to be taxed on)

2) I get taxed on:

90K

- 50K (initial purchase price)

= 40 (total profit to be taxed on)

thanks for all the cpa guys here and other experts that went through it

The short answer is your rehab costs are part of your basis in the property unless you have expensed them separately.

Hi @Ed E.  sorry for my ignorance...

but can you please elaborate on that?

what is part of my basis

and what do you mean by expensed them separately ?

thanks!

I would talk to an accountant to get your answers.  If you don't want to pay and talk to an accountant, then pull a copy of the instructions for IRS Form Schedule D.

In essence....if you paid $50k and then $20k to rehab the property, then your basis is $70k

If it's a flip, and you sell the property for $100k, then you pay a capital gains tax on the $30k difference.

If however, you paid $50k, and recorded $20k as "repair expenses" on your tax return for this year as a deduction, then sold the property for $100k, you would end up having to pay capital gains tax on the $50k because the $20k is not included in the basis (you already expensed it - you can't expense it twice).

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