Tax questions when fixing and selling a house

1 Reply

Hi I have a couple of tax questions.

  1. I sold my primary residence last year, where I've both lived and rented out half the house for the last few years. Let's say my house depreciates by $10000 every year, but since I only rent out half the house, I can only deduct $5000 each year. When I sell my house, does the basis decrease by $10000  or $5000 every year?
  2. I had to spend a few months fixing up the house before I sold it. From what I understand, the repair expenses get added back to house basis price. But what about other expenses while I was fixing up the place and not living there nor renting it out? For example HOA, utilities, home insurance. Can I add these to the basis as well, as part of renovation/repair expenses, or do I deduct them somehow?
  3. I also bought another property in 2017 with the intent to rent, but I had to fix up the place in 2017. From what I understand, the repair/renovation expenses gets added to the house basis price when I sell the place in the future. What about other expenses? For example mortgage interests, property taxes, utilities, insurance, etc, all of which I can fully deduct from rental income if I was renting the place out. But since I haven't rented out the place in 2017 is there a way to deduct them?

Thanks,

Ray

  1. I sold my primary residence last year, where I've both lived and rented out half the house for the last few years. Let's say my house depreciates by $10000 every year, but since I only rent out half the house, I can only deduct $5000 each year. When I sell my house, does the basis decrease by $10000 or $5000 every year?

    The adjusted basis is equal to original cost + improvements - Depreciation taken on your return.
    You can look at your prior year tax returns to see how much basis was taken.
    See Schedule E - Line 18 - Depreciation Expense or Depletion>
    You may be able to exclude all/portion of the sale of the house if you lived in the house for 2 out of the last 5 years.
  2. I had to spend a few months fixing up the house before I sold it. From what I understand, the repair expenses get added back to house basis price. But what about other expenses while I was fixing up the place and not living there nor renting it out? For example HOA, utilities, home insurance. Can I add these to the basis as well, as part of renovation/repair expenses, or do I deduct them somehow?

    Normally improvements and repairs get added to the basis of the house aslong as you did not deduct them on your return when they were a rental property.
    Allowing you to deduct the expense and add the basis is double dipping.
    Please make sure to have all your receipts in a row when you do sell it.

    Utilities, HOA fees, home insurance do not appear to be added to basis.
  3. I also bought another property in 2017 with the intent to rent, but I had to fix up the place in 2017. From what I understand, the repair/renovation expenses gets added to the house basis price when I sell the place in the future. What about other expenses? For example mortgage interests, property taxes, utilities, insurance, etc, all of which I can fully deduct from rental income if I was renting the place out. But since I haven't rented out the place in 2017 is there a way to deduct them?

    Ultimately - how it gets reports on your tax return is intent. 
    If it was intended to be a flip - you hold onto all of the costs of the property until it is eventually sold.
    If it was intended to be a buy and hold - it may be reported differently on your return.
Basit Siddiqi, CPA
917-280-8544

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