Sold second home in '06. Will declare as Long-term capital gain on 1040D. Can I use any home improvements, e.g. roof, plumbing to offset gain? I have enough documentation of such that would bring my gain down next to nothing. If so, do I simply put "adjustment to basis" or do I have to list specific improvements?
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Neither. If the expenditures are truly improvements, and not just repairs and maintenance, you simply add them to the basis and enter the total, as a single number, on Schedule D.
Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
Yes, so long as they were truly "improvements." There's a line drawn between improvements and maintenance. Plumbing is very close to the line: e.g., a new powder room or shower stall is a definite improvement; fixing a leak or clogged toilet is definitely _not_. "Improvements" are described in Pub 17 as "having a useful life of more than one year, increasing the value of the property, lengthening its life, or adapting to a different use." You add the cost of such items to your total cost basis -- recorded in your own records. There is no change necessary on tax forms, as the only entries are "Proceeds" and "Cost" (which is where you enter the total basis figure). Accurate records are advised, in the event of an audit. Bill
In this case, it seems like the person might want to push the envelope in the other direction and view the plumbing as long-term. I say this because I'm assuming the person did not take the plumbing (and the roof) in the year paid, right?
-Doug
PS By the way, this is what I love about taxes. People want to be honest, but they don't want to be pushovers. They want to claim what they reasonably can.
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