Hey Rene – congrats on the appreciation, and good call looking into this now. You’re staring down a big gain, and honestly, getting your basis right is the single most important thing you can do to reduce your tax bill here.

There’s a lot of noise in these threads sometimes, and I just want to offer some clarity as a CPA who works with real estate full-time. Some folks love to act like you need a receipt for every screw, and that if you can’t show perfect records, you’re doomed. That’s not how this actually works.

Yes – the IRS does expect taxpayers to maintain records “sufficient to establish” their numbers (Treas. Reg. §1.6001-1), but they also know people lose things and do renovations over years. Courts have consistently allowed credible estimates based on reasonable reconstruction – that’s straight from Cohan v. Commissioner, a foundational tax case. So if you spent $400k on renovations, you don’t need $400k of receipts – but you do need a solid narrative to back it up.

That said, no reasonable CPA is going to claim a $400k improvement basis with zero documentation. You’ll need to put together a support file – card or bank statements showing purchases, categorized spreadsheets tying out to projects, photos, permits, emails, inspection reports – anything that helps tell the story. Self-performed labor isn’t basis, but the materials you bought for it are.

A good CPA is allowed to rely on your info as long as it’s not clearly wrong or incomplete (Treas. Reg. §1.6694-1(e) and Circular 230). If someone tells you otherwise, they might just not understand their actual responsibilities. We have to take this work seriously, but that doesn’t mean freaking out and turning clients away because they can’t produce a shoebox of receipts.

If you’re willing to put in a little time now to reconstruct the expenses and organize it clearly, you’ll likely be able to support the full basis or something very close to it – and that could mean six figures in tax savings.

Happy to help if you need guidance on how to structure the support file or talk it through with a CPA. You’ve got a great opportunity here – just don’t leave money on the table because someone misunderstood the rules.