improvements reduce capital gains tax
what you're looking for are capital improvements," says Robert Burkarth,
CPA and Stamford, Ct.-based regional vice president with Householder Group, estate
and retirement planning specialists. "A new stove isn't necessarily a capital
improvement. You can buy a range and put it over in the corner, but that's not
an improvement. If it’s a built-in, that is an improvement. Essentially,
if it's moveable, it doesn't count."
"If you replace
all the flooring in a room, that's a capital expenditure," says Frederick
M. Stein, RIA senior tax analyst from Thomson Tax & Accounting. "If you
need to just replace some tiles, that's a repair. Anything that would require
the old floor to be ripped out totally is a capital expenditure."
thoroughly redoing a bathroom by taking out the old fixtures and putting in new
ones or adding tiles to a wall that had been painted are capital upgrades that
will add to the home's basis.
A good indicator that
an improvement will add to your home's basis, says Burkarth, is whether you need
a permit from your local government jurisdiction for the project. But it's not
a definitive determinant. You need to use your common sense.
course, if you need permit to paint, that doesn't count. That's maintenance,"
says Burkarth. And while neglecting routine maintenance could lower your home's
value, in the IRS's eyes, basic upkeep will not add to your basis. The difference
between the two is sometimes subtle, but not that hard to understand.
|Projects that will add to your home's basis: |
Bedroom, bathroom, deck, garage, porch, patio|
improvements: Built-in appliances, kitchen modernization, flooring, wall-to-wall
Attic, walls, floors, pipes and duct work|
and air conditioning: Heating system, central air conditioning, furnace,
duct work, central humidifier, filtration system|
Septic system, water heater, soft water system, filtration system.|
and grounds: Landscaping, driveway, walkway, fence retaining wall, sprinkler
system, swimming pool|
Storm windows and doors, new roof, central vacuum, wiring upgrades, satellite
dish, security system|
Sometimes what might start as a repair turns into a capital
Suppose, for example, your refrigerator's water
line to the icemaker leaked, seeping under the flooring and damaging most of the
room's hardwood flooring. The determining factor here is not what caused the improvement,
but that it was done.