Think of it as being akin to filing a claim with an insurance company in case of a fire when the paperwork isn't available. It's up to you to try to itemize and document as best you can, with as much detail as you can provide, what was spent. Make a good faith effort to reconstruct the elements, obtain price estimates from when things were purchased, etc.

Photographs can go a long way. Do you have a set of images showing the progress of construction? Of the interior when completed? Or, at worst, images that were used for the sales listing?

Credibility and an honest approach will help you if you're audited. Good luck.

You'll only need to show how you arrived at the amount if you're audited which is unlikely if the amount is within reason. A local builder or architect with more than 25 years of exteriece could prepare an itemized cost estimate; I've done it for a few clients. Before and after photos are useful. The auditor who reviews the estimate will be used to this situation and can use his/her discression. Just do the best you can.

I'm going to be selling my parents' house that they built in 1970. My father's general contracting company was the GC. Yikes, I think I have to go through some boxes in storage to find the receipts. So many boxes of paper. And I think I got rid of a lot of company papers after he sold the company 15 years after building the house.

bpath, are your parents still alive and selling the home?

No, they have both passed away.

Sushi pup is correct. Your cost basis is value at time you inherited home. You only have to deal with expenses since then as offset to appreciation of the property since you took ownership.

sushipup is correct. The "cost" basis for inherited property is its fair market value at the date of death (or at the Alternate Valuation Date six months later, if that was used for estate tax purposes). If the estate was large enough to require the filing of an Estate Tax return, that number will have been determined (whether well or quick and dirty) for that purpose and would be shown there. If not, you'll need to work backwards. Hopefully not too much time has passed. At worst, if nothing was done, you'll need to hire an appraiser - a relatively inexpensive proposition when needed for this purpose.

The property is in a trust. I think I’ll give a call to the estate attorney and the realtor (who has experience with trusts).

r m, I hope this didn’t hijack your thread too much.

Haha I was just thinking that

"The property is in a trust."

Many, many people have so-called living trust arrangements instead of wills to direct transfers of property at death. The effect is the same, it shouldn't matter. If the owners have died, the property is or will be transferred to the heir or heirs and basis has been stepped up or down. Even if held in a trust for some period of time or for some reason, the basis adjustment still has taken place.

r m, assuming there was a building permit pulled when you built the house, there might be some cost information included with that filing. Also, if you got a mortgage to build the house, there will be information on what you paid. Are you being audited or just gathering information to file your return?

I read putting a house in a Trust puts the house in a stepped up basis. If the person who died paid $200,00 for a house, when put in a Trust it is now going to be taxed at the current appraisal. The house could now be appraised for $800,000. The tax implication would have to be paid by those who inherit it.

If left in Probate, it would remain at the original purchase price, but could take a year to gain ownership plus you would have to have a lawyer handle the Probate.

I think it depends on whether those who inherit want to live in the house or plan to sell it.

A house placed in a Trust is tricky.

Jane

No, placing a house in trust is not that tricky. When we pass, our children will get inherit, via a revocable living trust, our real estate at a stepped up value. We just did this at the beginning of the year so the future tax implications are very clear in my mind.

Jane_ny, inherited real estate gets a stepped up basis under current law. If it is given as a gift before the owner passes away, the beneificaries' basis is the donor's basis. It is better to inherit than it is to be the recipient of a gift when it comes to appreciated assets under current tax law.

Each state does have different laws and regulations when it comes to trusts.

When talking about trusts and inheritances, most people have so-called living trusts, revocable trusts, in mind. These function in place of a will to avoid probate costs, delays, and hassles. When property passes to an heir through a living trust (which becomes irrevocable at death), it receives a basis step up to the value on the date of death (or alternate valuation date, if elected).

Sometimes people transfer property to an irrevocable trust during their lifetimes. When this is done, the settlor's historical basis carries over and at the time of death, there is no basis adjustment because the property placed into the irrevocable trust is not owned by the decedent at death.

OP: how did you pay for the construction 25 years ago? Cash? Bank loan?

Cash

How costs are paid for doesn't matter other than a credit card or check might have been a second means of documentation.

Receipts are just fine if you have them. If you don't and even if you do, you have a steeper hill to climb. Payments in cash are one of those things that are characteristic of tax cheats. Whether someone does or doesn't, such practices can color a tax representative's attitude about a taxpayer and the information they provide and stories they tell because it suggests a habit of cheating on income tax. Overstating expenses for asset basis is exactly the same as non-reporting or under reporting of income.

If you paid cash (and I mean from your bank account vs. a bank loan), then do you have bank statements from that time period? Are they obtainable from your bank? If so, they should include copies of cancelled checks (were they doing that back then or still sending paper copies?) and you could piece together the payments made.

If you remember who the subs were, and they're still around, you could contact them for past invoices.

Since you were owner-builders, do you have any spreadsheets that you made to track who was doing what, or what the bids were? Any paper files of the work?

Any written communication, or emails to dig out of your sent mail or inbox from back then?

Hi Rusty Hunter, I see your post from 2 years ago. We are in the same situation right now. Many years ago we bought a piece of land in Peru, built a house on it by paying cash to local people for a job (no receipts kept!) and now want to sell it. I am trying to think ahead for next year's tax filing on the supposed capital gains tax and how to support cost base....Anything we may learn from you?