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If I do restoration work on a car or a boat and later sell it, then there is a potentially capital gains tax liability if I sell it for more than I bought it for. I assume I can deduct money I spend on restoring the item, but not my own time.

For example, let's say I buy a boat for $50,000 and replace an engine on the boat, and do other expensive maintenance and upgrades, and then later sell the boat for $90,000.

Would I just need to save all my receipts for work done on the boat, then subtract this amount from the gain? For example, let's say that all the bills and receipts I have for parts and work on the boat come to $25,000. Then I report a net capital gain of $40,000 - $25,000 = $15,000.

If I do work on the boat myself, is there any way for me to charge my time against the capital gain? For example, let's say I incorporate myself as "The Five Bagger Boat Restoration Company" and then charge myself for the time I spend working on the boat. Is that allowable?

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    Also, "maintenance costs" are the cost to maintain the asset. The right term for your question is "improvements"
    – D Stanley
    Apr 24 '17 at 20:41
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I'm not 100% certain on boats, since they aren't typically sold for a gain, but the tax base of an asset is typically the cost of the asset plus the cost of any improvements, so your $15,000 gain looks right (check with a CPA to be certain, though, if you can). Your "cost basis" would be $50,000 + $25,000 = $75,000, and your net gain would be $90,000 - $75,000 = $15,000. The result is the same, but the arithmetic is organized a little differently.

I am fairly confident you cannot include your time in the "cost of improvements". If you incorporated and "paid yourself" for the time, then the payment would be considered income (and taxed), if it was even allowed. Depending on your tax bracket that may be a WORSE option for you.

You can look at it this way - you only pay the tax on the $15k gain versus paying someone else $15k to do the labor.

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  • This is mostly what I would have said, so just adding: There's no way to deduct time that makes sense as far as I know, but there may be a host of other expenses associated with the improvements that will offset basis, like mileage related to fetch parts/materials, shop expenses. Not sure if depreciation of assets can be deducted without filing it as a business.
    – Hart CO
    Apr 24 '17 at 21:03

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