Home improvements reduce capital gains tax
you stand to cash in big when you sell your home it's important to remember that
every dollar spent on home improvements, remodeling and renovations can mean a
dollar off your federal tax bill when that day comes.
because money spent on capital improvements is subtracted from your profit --
if and when you sell -- and thereby reduces the amount you may have to pay as
long term capital gains tax.
This is how it works: When you
sell your home very often you get to experience one of the best things about the
way your home has by realizing a tidy profit. That's also one of the worst things.
you net more than the IRS exclusion amount, you'll have to share some of your
sale proceeds with Uncle Sam.
Tax law allows a single homeowner
to escape an IRS bill on the first $250,000 in home-sale profit and $500,000 for
married couples. But some owners find that's not generous enough. This is
often the case where an owner has lived in the same house for many years. Even
in areas where the real estate market has softened somewhat, many sellers are
still making a pretty penny on their sales.
Don't worry. You
don't have to slash your home's selling price to keep part of the profit out of
IRS hands. Some home improvement projects can boost your property's basis, the
figure you subtract from your sale price to arrive at your taxable profit. The
bigger your basis, the lower your tax bill.
on your basis
Basis, the IRS term for your home's value, begins with
the amount you paid for your house. It includes settlement and closing costs and
any debt. If you inherited the property, your basis is its fair market value on
the day the previous owner died.
Home improvements that meet
IRS guidelines can increase your home's basis. The tax agency says the property-related
project must either materially add to the value of your home, considerably prolong
its useful life or adapts it to new uses.
that meet IRS specifications include putting a recreation room in your unfinished
basement, adding another bathroom or bedroom putting up a fence, putting in new
plumbing or wiring, installing a new roof and paving your driveway.