Ahhh... something I may be of help with!
I'm a CPA
IRS Publication 551 is what you want to look through for what you can use to increase the "basis" of your property. You'd be looking at purchase price plus the items listed in 551 in capital improvements. A capital improvement is an addition or alteration to your property that increases its value, prolongs its useful life, or adapts it to new uses. I know this is pretty gray for a personal property.
I think the biggest barrier is your burden of proof for the capital improvements that you have made. If you do not have evidence of those, you wouldn't stand a chance under audit. I would heavily investigate all of the items you have that were significant improvements to the property and compare that to what you could prove you spent on them. Ultimately if you sell, you'll have to make a risk-based decision on how much you add of those improvements. I think using the fish, fish food would be futile in an audit, but like I said, this all comes back to your risk appetite.
I'd suggest either a 1031 exchange for an income producing rental property (this was mentioned earlier as a way to defer the tax), or do an installment sale. If you sell it via an installment sale, you will only realize capital gains as the proceeds are received each year. Capital gains rates are attractive if you have low income. For instance, if you are married, if you have combined income less than approximately $90,000 your cap gains rate is 0%. All depends on your situation, but an installment sale may be a good approach. A good CPA and good attorney could step you through setting that up well.
Last edited by tylerd1994; 11/17/23 12:45 PM.
