Question on renovation cost deduction from profits on a flip for taxes

[Sophie Knight]

Apologies in advance if I'm wording this incorrectly -

I had an investment property from 2021 to 2024 we were doing renovations on the whole time. We sold in April 2024 at a loss due to the time holding, having to refinance the bridge loan, and rehab costs. My tax person is saying we can only write off renovations that were done in 2024 (even though we didn't write off the previous years).

He says because of the appreciation from 2021 to what we sold it for in 2024 the capital gains tax is going to be close to $50k were going to have to pay, even though we took a loss on the house.

Does anyone know if this sounds correct? The house was in Palm Springs, CA

Thanks in advance 

[Michael Plaks]

Quote from @Sophie Knight:

Apologies in advance if I'm wording this incorrectly -

I had an investment property from 2021 to 2024 we were doing renovations on the whole time. We sold in April 2024 at a loss due to the time holding, having to refinance the bridge loan, and rehab costs. My tax person is saying we can only write off renovations that were done in 2024 (even though we didn't write off the previous years).

He says because of the appreciation from 2021 to what we sold it for in 2024 the capital gains tax is going to be close to $50k were going to have to pay, even though we took a loss on the house.

Does anyone know if this sounds correct? The house was in Palm Springs, CA

Thanks in advance 

Before you rush to a conclusion, we need to know more. What my colleague @Jason Malabute said is correct, but it assumed that taxes were filed correctly in 2021, 2022 and 2023. Correct filing would be to have NO deductions for renovation in 2021-2023. Then all of them count in 2024.

However, what have possibly happened is that your accountant deducted your renovation costs in 2021, 2022 and 2023 as they were incurred. If this is what they did, then counting them all for 2024 would be double-dipping since you already took advantage of these deductions in 2021-23. You would have to either record a capital gain in 2024 or redo 2021-23 to remove those improper deductions - which is costlier and more complicated.