Rental Capitol Gains

stoutrv profile photo

I owned a gas station and have rented it out for seven years. Over the years I have done improvements. Do these improvement costs add to the amount I actually paid for the property therefore reducing my capitol gains, or did I possibly already benifit by writing those costs off through the years?

Comments(3)

  • DaveT22nd February, 2004

    The answer to both questions is the same: YES.

    Capital improvements do increase your cost basis, but are also depreciated during your holding period.

    You will have to explain what you mean by "writing them off".

  • stoutrv23rd February, 2004

    I was under the assumption the cpa's I've used in the past were using the improvements I made to the property to reduce the amount of taxes I owed on my yearly income tax. Would this not be a "double dip" on my part if these improvements reduced my cap gains as well? I rely alot on the expertise of cpa's but, I have found many times where they miss on getting me tax breaks. I missed out on the 1031 exchange due to them saying I had to buy a gas station for selling a gas station.

  • DaveT24th February, 2004

    You have to spend money to acquire a capital improvement. A capital improvement can not be deducted as a business expense, so, it is only right that your capital improvement increase your cost basis.

    The CPAs probably were taking a depreciation deduction for your capital improvements which had the effect of reducing your tax liability, but the depreciation taken also reduces your cost basis.

    The IRS is perfectly happy that you do this but it is not a double dip because the IRS will tax you on the amount of depreciation allowed when you sell the property. This is what depreciation recapture is all about.

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