What If You Don’t Have Receipts for Capital Improvements?

If you don’t have receipts for capital improvements, you can still claim them against your taxable gain — you just have to prove the money was spent some other way. The IRS and the courts accept bank statements, canceled checks, contracts, building permits, dated photos, insurance records, and written statements from contractors or neighbors as substitutes for lost receipts. A legal doctrine known as the Cohan rule goes further and lets courts allow a reasonable estimate when exact records no longer exist. What you cannot do is shrug and hope: a basis you can’t support is a basis you lose, and every dollar of unproven improvement becomes a dollar of taxable gain.

What’s Actually at Stake

Your capital gain on a sale is the price (minus selling costs) less your adjusted basis, and your basis is the original purchase price plus every qualifying capital improvement you made along the way.¹ Improvements you can’t document don’t get added. The gain goes up by exactly that amount.

Put real numbers on it. If you can’t substantiate $75,000 of work and you’re in the 15% long-term capital gains bracket with the 3.8% net investment income tax applying, that’s roughly $14,100 of federal tax you didn’t owe. Add a state income tax and the total climbs further. The reconstruction work in this article is worth doing because the dollars at stake are usually five figures.

First, Make Sure It Was Really an Improvement

Before you hunt for proof, confirm the expense qualifies. The IRS draws a hard line between improvements and repairs. An improvement adds value, extends the property’s useful life, or adapts it to a new use. A repair just keeps something working as it already was.² A new roof is an improvement; patching a leak is a repair. A new HVAC system is an improvement; fixing the thermostat is a repair. Only improvements raise your basis.

IRS Publication 523 lists common qualifying improvements, including additions (bedrooms, bathrooms, decks, garages), systems (heating, central air, wiring, security, water filtration), exterior work (new roof, siding, storm windows, insulation), plumbing (septic, water heaters), lawn and grounds work (landscaping, driveways, fences, pools), and interior work (built-in appliances, kitchen modernization, flooring, fireplaces).³

One useful nuance when you’re reconstructing: repair-type work done as part of a larger remodel can count as an improvement. Replacing a single cracked window is a repair, but replacing every window during a full renovation is an improvement.³ If you did a comprehensive project, pull everything from that project into one bucket rather than parsing out individual line items.

The Cohan Rule: You Don’t Start at Zero

Many taxpayers assume missing receipts mean the IRS will set their improvement costs at zero. That isn’t quite right. Under a long-standing principle called the Cohan rule, when a taxpayer clearly incurred an expense but can’t produce exact records, courts may allow a reasonable estimate rather than disallow the deduction entirely. The rule traces to a 1930 federal appeals decision and has been applied specifically to home-improvement basis disputes.

In practice, courts applying Cohan give you credit but resolve every ambiguity in the government’s favor. A taxpayer who shows up with before-and-after photos, a home-improvement loan, and a statement from the contractor gets a much larger basis adjustment than one offering a rough memory. The rule rewards effort. It isn’t a free pass.

One limit worth knowing: the Cohan rule doesn’t apply to expenses governed by the strict substantiation rules of Section 274 (business travel, entertainment, gifts). Capital improvements to real estate aren’t in that category, so the rule remains available for basis disputes.

Alternative Evidence the IRS Will Accept

Build a file of secondary evidence that collectively establishes three things for each project: the cost, the date, and the nature of the work. No single document has to do all three. The goal is a body of evidence that tells a coherent story.

Bank and Credit Card Records

Usually the strongest substitute. A canceled check to a roofing company or a credit card charge at a building-supply store nails down amount and date. Call your bank or card issuer — most can retrieve statements going back seven to ten years, and some keep electronic records longer.

Contracts, Change Orders, and Emails

A signed contract spells out scope and price, which covers both nature and cost in one document. Change orders, final invoices, and even email threads confirming project details work the same way. If the contractor is still in business, ask whether they keep project records; many do.

Building Permits and Inspection Reports

Permits are public records and typically kept permanently. A permit for a room addition, structural work, or a new electrical panel is official proof that an improvement happened on a specific date. Many municipalities have searchable online databases now; where they don’t, the building department will pull historical permits on request. Inspection reports and any architectural or engineering plans you had drawn up help an appraiser estimate what the work cost.

Photos and Third-Party Statements

Dated before, during, and after photos (digital files with embedded metadata are ideal) carry a lot of weight. Written statements from third parties add credibility: a sworn affidavit from the contractor, a letter from a neighbor who watched the construction, a statement from a family member who helped. Include contact information and the specific dates the person observed the work.

Settlement Statements and Closing Documents

Your original HUD-1 or Closing Disclosure sets your starting basis and lists closing costs that get added to it: abstract fees, legal fees for the title search and deed, recording fees, surveys, transfer taxes, and owner’s title insurance.³ Lost it? The title company, escrow company, or lender that handled the closing usually has copies.

Insurance and Property Tax Records

If your homeowner’s coverage was raised after a renovation, that increase supports the claim that an improvement was made. County property tax assessments sometimes reflect value jumps after major work, and the assessor’s office keeps historical records that are public.

A Written Project Log

Create one summary document listing every project where original receipts are gone. For each, note the approximate date, the work performed, the estimated cost, and the supporting documents you have. This log is your index. It turns a pile of statements and photos into an organized narrative an examiner can follow.

Where to Go to Rebuild the File

The IRS publishes its own guidance on reconstructing records, and the agency’s suggested sources for real property are the right starting list.⁴

Title and escrow companies, for closing documents that establish your original basis.
Contractors who performed the work. Even if the company has closed, the individual contractor may still have personal records.
Lenders who financed improvements through a home equity loan or line of credit; they’ll have loan amounts, disbursement dates, and sometimes the supporting appraisal.
The county assessor’s office, for historical property tax records that may note value changes or construction activity.
The local building department, for historical permits.
Your insurance company, for policy declarations showing coverage increases after renovations.
Friends, neighbors, and relatives who can give a written account of the before and after.

Real estate brokers and appraisers can also help establish fair market values from the relevant time period using comparable sales data.

Estimate Conservatively — Don’t Overstate

The risk runs in both directions. If the basis you claim on your return is 150% or more of the correct amount, the IRS can impose a 20% accuracy-related penalty on the resulting tax underpayment. If the overstatement reaches 200% or more, the penalty doubles to 40%. The penalty kicks in only when the underpayment attributable to the overstatement exceeds $5,000 ($10,000 for C corporations).⁵ The IRS can waive or reduce the penalty for reasonable cause and good faith, but “I thought I spent about that much” without supporting evidence is unlikely to clear that bar.⁶ When in doubt, estimate low and let the documentation speak.

If It Was Your Primary Home, the Problem May Disappear

If the property was your main home and you lived there at least two of the five years before the sale, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly).⁷ Run the numbers on your gain without the missing improvements first. If you’re well under the exclusion, the receipts don’t matter. If you’re over it — or the property was a rental or second home where no exclusion applies — every undocumented dollar costs you.

Inherited and Rental Property Have Their Own Wrinkles

When you inherit real estate, your starting basis is generally the property’s fair market value on the date of the previous owner’s death.⁸ Improvements you make after inheriting still need documentation to push basis above that stepped-up figure, and the same reconstruction tools apply. If no appraisal was done at the time of death, check probate court records, contact the estate’s attorney, or pull comparable sales from the relevant period.⁴

Rental property adds a complication. You’re required to depreciate residential rental property over 27.5 years, and depreciation reduces basis whether you actually claimed it or not. On sale, gain attributable to depreciation taken (or allowed) is taxed at a rate up to 25%, separate from the standard long-term capital gains rate.⁹ Improvements to a rental affect both the annual depreciation calculation and the eventual recapture, so missing receipts can distort multiple tax years. The reconstruction work is more urgent, not less.

Keep What You Rebuild

The IRS requires you to keep property basis records for as long as you own the property, then until the statute of limitations expires for the year you sell.¹⁰ That usually means at least three years after filing the return reporting the sale.¹¹ If you acquired the property through a tax-free exchange, hold the records from the original property too, because that earlier basis carries forward. Once you’ve gone to the trouble of rebuilding a file, store it somewhere you’ll find it — and if the IRS questions your basis later, hand them the project log first and the backup documents behind it.

1
Internal Revenue Service. Property (Basis, Sale of Home, etc.) 3
2
Internal Revenue Service. Tangible Property Final Regulations
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Internal Revenue Service. Publication 523 (2025), Selling Your Home
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Internal Revenue Service. Reconstructing Records After a Natural Disaster or Casualty Loss
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Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
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Internal Revenue Service. Accuracy-Related Penalty
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Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
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eCFR. 26 CFR 1.1014-1 – Basis of Property Acquired From a Decedent
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Internal Revenue Service. Property (Basis, Sale of Home, etc.) 5
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Internal Revenue Service. How Long Should I Keep Records
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Internal Revenue Service. Topic No. 305, Recordkeeping