How To Reduce You Taxes Through Home Improvement
The paint. The dust. The torn-up room. Home improvement projects may not be high on your list of enjoyable events. But, when you’re ready to sell your house, any money you’ve spent on fixing it up may save you from paying tax on the sale.
The Home-sale Exclusion
You probably know that a married couple is entitled to $500,000 of tax-free gain ($250,000 for singles) on a home sale if they’ve used the house as a principal residence for two out of the five years prior to the sale. Taxable gain is the difference between your basis in the home (essentially, your cost) and the selling price. So, for most people, the exclusion eliminates or severely reduces any tax on a home sale. But not for all.
And that’s where home improvements could come into play. If you’ve kept good records, you can increase your home’s basis by adding in remodeling costs. Generally, any work that adds to your home’s value or extends its life counts toward your basis.
Examples of eligible expenditures include:
- Putting in a patio, deck, or swimming pool
- Finishing a basement or attic
- Adding a room or fireplace
- Vinyl or aluminum siding or similar exterior improvements like masonry work
- Storm windows and doors
- New plumbing or heating system
- Air conditioning
Simple repairs, such as painting or fixing broken gutters and windows, don’t get added to your basis. But, if repairs are scheduled as part of a home improvement project, the entire cost of the renovation can be added to your basis.
Connect with our team today for all the latest and most current tax rules and regulations. Give us a call at 510-222-5800.