I’d prepare what you have been discussing here in terms of improvements, come up with a reasonable estimate of cost and add it all up. Make sure the improvements are something that can be seen or understood by a 3rd party. For instance you wouldn’t want some improvement added that doesn’t exist anymore. Figure for each $10,000 there is you would be saving $2000 in taxes. I’d speak with a local CPA about your sale and the upcoming tax filings and share your information with them for your adjusted basis. I’d get their opinion on what you have, and how much support/evidence you have as a package and if they feel it’s sound enough for the return. Then you can go back and forth on a few items if they are worth the squeeze or not. Most folks having a hell of a time through audit have done some pretty shady things and or are really unorganized. Keep it organized, reasonable, and with common sense I doubt you’d hear from the IRS. If there isn’t any fraud involved the IRS typically only looks back for 3 years for audits. If you do hear from them, it should be simple explanations. The worst part about audits is the additional cost you incur for representation from a cpa or attorney.
Thanks, that makes good cents -- uh, sense.
