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

If you don’t have receipts for capital improvements, you can still add those costs to your property’s basis by reconstructing the record with alternative evidence. Bank and credit card statements, signed contracts, building permits, dated photos, contractor affidavits, and insurance records all count. A longstanding legal principle called the Cohan rule lets courts accept a reasonable estimate when exact documentation is gone, as long as you can show the work was actually done. What you cannot do is shrug and claim a round number: unsupported guesses lose, and inflated ones invite penalties.

The stakes are real. Every dollar of improvement you can’t substantiate stays out of your basis, which means an extra dollar of taxable gain when you sell. On $80,000 of unproven work at the common 15% long-term capital gains rate, that’s $12,000 in federal tax you didn’t need to pay.

First, Confirm the Work Was an Improvement

Before you spend hours chasing paper, make sure the expense actually 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 keeps things working as they already were.¹

Replacing an entire roof is an improvement. Patching a leak is a repair. Installing a new HVAC system is an improvement. Fixing a broken thermostat is a repair. Only improvements increase your basis, and repairs on a personal residence give you no tax benefit at all.

IRS Publication 523 lists common improvements that increase basis:²

Additions such as bedrooms, bathrooms, decks, garages, porches, and patios
Lawn and grounds work including landscaping, driveways, fences, retaining walls, and swimming pools
Systems: heating, central air, wiring, security, water filtration
Exterior work: new roof, siding, storm windows and doors, insulation
Plumbing: septic systems, water heaters, soft water systems
Interior: built-in appliances, kitchen modernization, flooring, fireplaces

One useful nuance: repair-type work performed as part of a larger remodel counts as an improvement. Replacing one cracked window is a repair, but replacing every window during a full renovation qualifies.² A comprehensive project sweeps in more cost than you might first think.

The Cohan Rule Is Why Reconstruction Is Worth Doing

Taxpayers sometimes assume that no receipt means no basis. That’s wrong. A federal appeals court decision from 1930, known as the Cohan rule, holds that 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. Courts have applied it specifically to home improvement basis disputes.

In practice, judges applying Cohan grant some credit but resolve every ambiguity against the taxpayer. Photos, a home improvement loan, and a contractor’s testimony produce a much larger basis adjustment than uncorroborated memory. The rule rewards effort. It’s a safety net, not a free pass.

One boundary: Cohan does not apply to categories that Congress subjected to strict substantiation under Section 274, such as business travel, entertainment, and gifts. Capital improvements to real estate aren’t in that category, so the rule remains available.

Alternative Documentation the IRS Accepts

Your goal is a body of evidence that collectively establishes three things: what the work was, when it happened, and what it cost. No single document has to prove all three.

Bank and Credit Card Records

These are usually the strongest substitute for lost receipts. A canceled check to a roofing company or a credit card charge at a building supply store fixes both the amount and the date. Statements often carry merchant category codes or descriptions that link charges to specific projects. Most banks and card issuers can retrieve statements going back seven to ten years, and some hold electronic records longer.

Contracts and Written Agreements

A signed contract lays out the scope of work and the agreed price, establishing both the nature of the expense and the cost. Change orders, material lists, and final invoices do the same. Even an email confirming project details can help. If you still have the contractor’s contact information, ask whether they retain project records — many do.

Building Permits and Inspection Reports

Permits are filed with local government and typically stay in public records permanently. A permit for a room addition, structural alteration, or new electrical panel is official proof that a capital improvement was done on a specific date. Many municipalities maintain searchable online permit databases; where they don’t, the building department will pull historical permits on request for a small fee. Inspection reports confirm the work was completed to code, and any architectural or engineering plans you had drawn up help an appraiser estimate cost.

Photos and Third-Party Statements

Before, during, and after photos are surprisingly useful, especially digital files carrying date metadata. Bare studs in January and a finished kitchen in March tell a clear story.

Written statements from third parties add credibility. A sworn affidavit from the contractor who did the work, a letter from a neighbor who watched construction happen, or a statement from a family member who helped can all corroborate timing and scope. Include the person’s contact information and the specific dates they observed the work.

Settlement Statements and Closing Documents

Your original settlement statement (the HUD-1 or Closing Disclosure) establishes your starting basis, including certain closing costs that get added to it: abstract fees, legal fees for title search and deed preparation, recording fees, survey fees, transfer taxes, and owner’s title insurance.² If you lost it, the title company, escrow company, or lender that handled the closing can usually provide a copy.

Insurance Records and Property Tax Assessments

Homeowner’s policies often list the replacement value of the structure. If your insurer increased coverage after a renovation, that adjustment supports the claim that an improvement happened. County property tax assessments sometimes reflect value increases after major work, and the assessor’s office typically keeps historical records available to the public.

A Contemporaneous Log

Write a summary of every project where receipts are missing. For each, record the approximate date, a description of the work, the estimated cost, and a list of whatever supporting documents you have. This log becomes your master index and gives an examiner an organized narrative instead of a stack of unlinked bank statements and photos.

Where to Go to Pull Copies

The IRS publishes guidance on reconstructing records, and its suggested sources for real property are practical:³

Title and escrow companies for closing documents that establish your original basis
Contractors, who often keep project files for years; even if the company closed, the individual contractor may still have personal records
Lenders, if you financed improvements with a home equity loan or line of credit — they have loan amounts, disbursement dates, and possibly an appraisal
The county assessor’s office, for historical property tax records showing value increases and notes about permits or construction
The building department, for historical permits
Your insurance company, for historical policy declarations showing coverage increases after renovations
Friends and relatives, for written accounts of what the property looked like before and after

For inherited property, the IRS suggests checking court records for probate values and contacting the attorney who handled the estate or trust.³ Real estate brokers and appraisal companies can help establish fair market value using comparable sales from the relevant period.

What Missing Documentation Actually Costs

Every unproven dollar of improvement is a dollar of extra taxable gain. Federal long-term capital gains rates for 2026 are 0%, 15%, or 20%, depending on taxable income. Most homeowners land at 15%, but the 20% rate kicks in above $545,500 for single filers and $613,700 for joint filers. On top of that, a 3.8% net investment income tax applies to individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly).⁴ For higher-income sellers, the combined federal rate can reach 23.8%. Many states tax capital gains too, with rates as high as 13.3% in the most expensive states.

Concrete numbers: fail to substantiate $75,000 in improvements at the 15% federal bracket with NIIT applying, and you lose roughly $14,100 in unnecessary federal tax. Add a 5% state rate and the total climbs to $17,850.

One boundary worth noting: if the property was your primary residence and you lived there for at least two of the five years before the sale, you can exclude up to $250,000 in gain ($500,000 for married couples filing jointly).⁵ If your gain falls under that threshold even without adding improvements, the missing receipts may not cost you anything. If it doesn’t, or if the property is a rental or second home, every unproven dollar bites.

Don’t Overshoot the Other Way

The pressure runs both ways. Overstating basis by claiming improvements you didn’t make triggers IRS penalties. If the adjusted basis you claim is 150% or more of the correct amount, the IRS can impose a 20% accuracy-related penalty on the resulting underpayment. At 200% or more, the penalty doubles to 40%. These penalties apply when the underpayment from the overstatement exceeds $5,000 ($10,000 for C corporations).⁶ The IRS can reduce them for reasonable cause and good faith, but “I thought I spent about that much” without supporting evidence rarely satisfies that standard.⁷ Estimate conservatively and document what you can.

Inherited and Rental Property

Inherited real estate gets a stepped-up basis: the fair market value on the date of the previous owner’s death, not what they originally paid.⁸ Improvements you make after inheriting still need documentation to push basis above that stepped-up value, and the same alternative-evidence rules apply. If no formal appraisal was done at the time of death, probate records, estate counsel, and comparable sales data from that period can help establish the number.

Rental property adds a second wrinkle. The IRS requires depreciation of residential rental property over 27.5 years, and that depreciation reduces your basis whether you actually claimed it or not. Gain attributable to depreciation you took (or were allowed to take) is taxed at up to 25% at sale, separate from the standard capital gains rate.⁹ Improvements to a rental increase depreciable basis, which affects both the yearly depreciation and the eventual recapture. Missing receipts on a rental cascade across multiple tax years, so reconstruction matters even more than it does for a personal home.

1
Internal Revenue Service. Tangible Property Final Regulations
2
Internal Revenue Service. Publication 523 (2025), Selling Your Home
3
Internal Revenue Service. Reconstructing Records After a Natural Disaster or Casualty Loss
4
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
5
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
6
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
8
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