By JC Leahy, MA Accounting
When you want to sell a house or condo, you might feel the need to fix it up before you show it to prospective buyers. Much has been written about the wisdom of doing this. This article is about whether or not you can deduct fix-up expenses on your income tax return. The answer is: maybe, maybe not.
For tax purposes, fix-up expenses include the cost of decorating and repairing a house for sale. Fixing-up expenses do not include major outlays for capital improvements, which are treated differently. Fixing-up expenses are subtracted from the sales price of the house to reduce the capital gain (or increase the capital loss). Like Cinderella and the stroke of midnight, fix-up expenses have certain time limitations. To be counted as fix-up expenses, the decorating or repair must be PERFORMED no more than 90 days before the sales contract, and PAID not later than 30 days after date of sale – otherwise, you are, as they say, SOL.
If the stroke of midnight has passed, your fix-up expense deduction might still be saved if this slipper fits: If the house was a rental property, then you might well make the case that repair and decorating expenses are deductible as rental (Schedule E) expenses. In that event, they will either offset ordinary income (if your $25,000 passive loss exception kicks in) or carry forward to the house’s capital gain calculation as unrecognized passive loss -- thereby reducing your capital gain.
For more information about how to compute capital gain/loss, CLICK HERE. For assistance with your income tax filings contact:
JC Leahy, MA Accounting
Silver Spring, Maryland