I bought a home in 2005, and just sold it two years later. We made a lot of improvements on the home, to which I kept all the reciepts. Can I use them this year when I file my income tax return, as a deduction? I have been told I can, but I dont really understand how. Also moved and dont have a new accountant to ask yet. Any help would be appriciated. Thanks!
Was this home your primary residence? If so as long as you lived in it for at least 2 years you could exempt gain up to $250,000 if single and $500,000 if married. You don't get to deduct the home improvements, it gets added into your cost basis. Your cost basis would be the purchase price for the house, plus costs incurred in buying it, plus costs of the improvements, plus costs incurred in selling it. From that you compare what you sold it for and see if you have gain or loss. If you have gain, you're ok, if you lived in it for the 2 year rule (2 out of preceeding 5 years). If not, then your gain would be subject to capital gains tax, but would be long-term gain, subject to maximum tax of 15% (5% if in 10% or 15% tax bracket). If the home was rental or investment property, then everything I told you above would still apply, except for the gain exemption ($250,000 if single and $500,000 if married). You'd also have to subtract any depreciation you took from the cost basis.
Rating: 3 out of 5