| Hold on to those receipts…
CLIENT QUESTION:
Hi Lawrence,
In discussing the increased cost basis of a home, you describe (“a new roof, windows, boiler, driveway, siding, bathrooms, kitchen, etc. Each capital expenditure adds to the basis”).
I suspect that over a period of a few decades, many of your clients will have lost the records of those capital improvements. How does one document the increased cost basis in that situation?
MY RESPONSE:
Say it ain’t so. I can’t believe that there is anyone out there not keeping every receipt from their capital improvements! 😊 It is important that you do. But if you did not, are you out of luck? To answer this question I asked several accountants what they tell their clients and this is what I learned…
Generally speaking a “best estimate” is reported for the cost of all capital improvements. This does not mean making up anything that sounds good, it means being reasonable. Or another way to put it is…”DON’T BE A PIG!.”
However, you always run the risk that you will be audited and called upon to back up your “best estimates.” One way to do that is to take pictures of all your projects, before and after, especially your larger projects, to show that the work was actually done.
The good news for all of you who do not keep receipts or take pictures is that an audit on these facts is extremely rare. |
