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Home Improvement Guide 2007
On the money
Whether it's a fresh coat of paint or a total home renovation, sooner or later it comes down to paying for it.
On the money
Home improvements reduce capital gains tax
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"Generally, 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."

Similarly, 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.

"Of 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:
Additions: Bedroom, bathroom, deck, garage, porch, patio
Interior improvements: Built-in appliances, kitchen modernization, flooring, wall-to-wall carpeting
Insulation: Attic, walls, floors, pipes and duct work
Heating and air conditioning: Heating system, central air conditioning, furnace, duct work, central humidifier, filtration system
Plumbing: Septic system, water heater, soft water system, filtration system.
Lawn and grounds: Landscaping, driveway, walkway, fence retaining wall, sprinkler system, swimming pool
Miscellaneous: Storm windows and doors, new roof, central vacuum, wiring upgrades, satellite dish, security system

Cause and effect
Sometimes what might start as a repair turns into a capital improvement.

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.

-- Posted: April 4, 2007
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