Question

10. Taxpayers spent $20,000 to add a garage and guest room to their principal residence, which was paid for by using part of the wife's inheritance from her dad. In addition to the $20,000 of construction costs, they paid their attorney $500 to prepare the construction contract with their contractor.

Are any of these expenses deductible from gross income?

Answer 1

Yes, these expenses are deductible from gross income.

Any expenses incurred to add or improve the value of assets are deductible if so far such improvements are reflected in the value of asset at time of its disposal. Building garage will add the value to the asset and it will be included in the property at the time of disposal.

If you have spent money improving the value of your asset, you may be able to deduct these costs, as long as the improvement is still reflected in the value of the asset when you dispose of it. For example, if you build a garage to add value to your property – and it is still part of the property when you sell or dispose of it – you can deduct the cost of the garage.