Capital Renovations

Today TaxMama hears from Claudette in New York, who asks. “What is the best way to put together a schedule of capital improvement expenses to offset the proceeds of the sale, if the house has gone through many renovations over the years. “

Dear Claudette,

This is always such a problem, that I always advise people to keep a permanent file with copies of all the invoices related to a property. Let this be a file you keep handy, so you can drop all the invoices in there, from plumbers, electricians, Home Depot, Osh, Lowes, etc.

But, if you haven’t already done that? Let’s see. If I were doing this, where would I start?

First of all, start gathering information about the most recent improvements – during the last 5 years. If there were any major repairs done, like roofing, plumbing, replacing appliances that will stay with the house, adding rooms, re-paving a driveway, adding air conditioning…even if you don’t have the receipts, it’s possible that the contractors or suppliers still have the transaction on record.

If not? Start with the date the house was purchased and write a little description of the layout and condition of the house, and the amenities it contained.

Slowly move forward in your memory, or that of anyone who lived there (and note from whose memory it came). Write down improvements. For instance:

1965 – pool added1967 – air conditioning
1974 – roof replaced1978 – kitchen remodeled
1982 – security bars added
1985 – electrical upgraded
1987 – copper plumbing
1989 – landscaping done
1990 – fencing replaced
1994 – chimney collapsed in earthquake

etc….

As you go along, if you remember the cost, list it next to the description. If not, go back
and add it after you’re done.

If you need help jogging your memory, see if you can find any picture albums. Perhaps there are photos of the way the place looked at various times over the years.

You’ll see the carpet, the old wallpaper, bookcases that were built in, or torn out. Rooms that were enlarged, or split into two… Find whatever documentation you can. If you can’t, write good descriptions and explanations. And pray you never get audited.

Remember, you’ll find answers to questions about reducing capital gains and all kinds of tax issues, free. Where? Where else? At TaxMama.com

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