House basis question

[Catherine]

Another convoluted question from a client. At least this one came to me first.

Client is looking ahead to selling home in another year or so but realized there are basis issues. I've got all of them but one sorted out with cites to back me up, but the answer to this one is hiding. I know that posting the query is the best way to find the answer in my sources!

This client had rolled over gain from sale of a prior home into this one -- back around 1991, when you could still defer gain as long as the new home cost more than the one sold. My vague recollection is that this gets no special treatment, and as long as you go over the exclusion amounts, you pay tax on total gain over that excluded amount. But I can't find "proof" of that. I've sent the client off to look for basis adjustments on that first house, but still need to be sure I have proper treatment of that deferred gain in my notes.

Thanks.

Was this question even coherent? I am _so_ tired I can barely see straight and have been typing with my eyes closed. Thanks all!

Night-night.

Catherine

[Don in Upstate NY]

... This client had rolled over gain from sale of a prior home into this one -- back around 1991, when you could still defer gain as long as the new home cost more than the one sold. My vague recollection is that this gets no special treatment, ...

From Pub 523, page 10 ...

Decreases to basis.

These include any Gain you postponed from the sale of a previous home before May 7, 1997,

[Lion EA]

Wouldn't the type of basis adjustments that a client would find for you have already been included in the gain he postponed?

[jainen]

>>Wouldn't the type of basis adjustments that a client would find for you have already been included in the gain he postponed? <<

In a sense that is true, but there is no need to trace back further than the purchase of the replacement property. For example original house cost $100,000 plus $25000 improvements, minus $10000 for a casualty loss. He sold it in 1995 for $150,000 ($35000 gain) but rolled that into a new $200,000 home. The basis of the new home is simply decreased to $165,000 by the deferred gain, and we forget about the casualty loss, the improvements, and the original $100,000 basis itself.

[Lion EA]

Jainen explained what I meant but did not explain. All the increases and decreases to the basis of the old house and resulting deferred capital gain are now part of the basis of the newer house. You don't need to send the client looking for capital improvements made to his former house; he did that the last time he sold.

[Catherine]

Jainen explained what I meant but did not explain. All the increases and decreases to the basis of the old house and resulting deferred capital gain are now part of the basis of the newer house. You don't need to send the client looking for capital improvements made to his former house; he did that the last time he sold.

Well, the client may have done that the last time he sold, but I don't have the numbers. I have purchase and sale prices only -- but there were some major renovations on that older house, too. That would increase the basis in that house and lower the (deferred) gain. Client may or may not still have that tax return which may or may not include the gain computation. But the client does have records of what he did -- stayed in same area and wanted to track who did good work first time around.

But it is surely a lot more recent than a client a couple years ago -- sold a house he'd lived in since I was a toddler and had done lots of major work over the years. And he had every hand-written tradesman's receipt for kitchen and bathroom renovations, roof work, furnace -- you name it. It was a bit odd to total up receipts from days before I knew how to print my name!

[RoyDaleOne]

Form 2119 from 1991, I am sure your client was instructed to keep that record forever.

[Catherine]

Form 2119 from 1991, I am sure your client was instructed to keep that record forever.

Client did owe taxes for all those years.....