Q. I sold my home in 1996. Do I have to report the sale?

A. Yes. Use Form 2119, Sale of Your Home. You must report the sale even if you sold your home at a loss. You must also report the sale even if you are eligible to exclude or postpone part or all of the gain or you replaced your home. For more information, refer to:

Tax Topic 701, Sale of Your Home - General

Tax Topic 702, Sale of Your Home - How to Report Gain

Tax Topic 703, Sale of Your Home - Exclusion of Gain, Age 55 and Over, or

Publication 523, Selling Your Home.

Q. I have investment property. Can you explain the term "Basis of Assets"?

A. Basis is your investment in property for tax purposes. Before you can figure any gain or loss on a sale, exchange, or other disposition of property, or figure allowable depreciation, you must determine the adjusted basis. Adjusted basis is the result of increasing or decreasing your original basis according to certain events. Your orginal basis is usually your cost to acquire the asset. More information on basis and adjusted basis can be found in Tax Topic 704, Basis of Assets, or Publication 551, Basis of Assets.

Q. What is the basis of property received as a gift?

A. To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know its fair market value (FMV) at the time it was given to you and any gift tax paid on it. Refer to Publication 551, Basis for Assets, for specific details.

Q. May I deduct my home improvements and repairs to my home?

A. Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of improvements to the basis of your property.

Examples of improvements include putting a recreation room in your unfinished basement, adding another bathroom, or bedroom, putting up a fence, putting in a new plumbing or wiring, putting on a new roof, or paving your driveway.

For a list of some other examples of improvements, refer to Publication 523, Selling Your Home.

Repairs maintain your home in good condition. They do not add to its value or prolong its life, and you do not add their cost to the basis of your property.

Some examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering and replacing broken window panes.

The entire job is considered an improvement, however, if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home.

Q. What kinds of property can be depreciated for tax purposes?

A. The kinds of property that can be depreciated include machinery, equipment, buildings, vehicles, and furniture used in a trade or business or to produce income. Depreciation is a very complex subject. For more information, refer to Tax Topic 705, Depreciation, or Publication 946, How to Depreciate Property, or Publication 534, Depreciating Property Placed in Service Before 1987.

Q. How do I report interest received on an installment sale?

A. If you receive interest of over $400 on an installment sale, report the entire amount on Schedule B Form 1040. For additional information on installment sales, refer to Tax Topic 706, or Publication 537, Installment Sales.

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