What kind of proof do I need for the IRS to show an increase in the tax basis of my home?
I have a couple of capital gains tax questions regarding upgrades to my home. First, I had $400 worth of bushes installed last spring in my yard. Can I show my canceled check plus a copy of the text thread from my phone? What other proof of the installation of the bushes would I need?
The concern you mention is that when a spouse dies, the surviving spouse would have to sell the home rather soon after the death of the spouse to get the full benefit of the $500,000 exclusion. According to the IRS, you must sell the hometo get the full exclusion. If you sell your home after the two year period, you’d only get the $250,000 exclusion.
As a reminder to our readers, certain home improvements will augment your “tax basis.” This term, in essence, refers to your total cost for the home, including allowable expenses. Let’s say you buy a home for $100,000 and put on an addition worth $100,000. Your cost basis would be $200,000. The IRS also allows certain costs of sale to go into your basis amount. These costs of purchase and sale include commissions and some expenses you incur to prepare the home for sale.
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