It’s every homeowner’s desire to come out ahead when they sell their home. But if you stand to make a whopping profit—more than $250,000 for unmarried folks, and more than $500,000 for married ones—the IRS is going to want a piece of that pie. One way to shake them off your leg is to make qualified capital improvements to your home, and keep track of the money you spend to do so.
It’s important to draw a distinction between capital improvements and maintenance or repairs. The key word is improvements, meaning upgrades and updates to your home that add lasting, material value. Capital improvements make up the majority of the work we do at Frey Construction—things like kitchen remodels, new decks, room additions, new storm windows, new siding, and roof replacements. What won’t qualify are things like replacing a few shingles, repairing water damage, or making the countertop match the cabinets. You get the idea.
Americans are far more mobile now than they used to be, bouncing from home to home with a frequency that would have made their grandparents’ heads spin. In those cases, it doesn’t usually make sense to stockpile receipts for every penny spent on capital improvements. But for homeowners who are at one address for decades or have any other reason to anticipate a sizeable profit at sale, it makes good tax sense.
If you’re not sure which camp you’re going to fall in—maybe you’ll move, maybe not—err on the side of caution. Get receipts for any material and all labor involved in any capital improvements to your home. Those dollars will become part of the cost basis of your home when the IRS wants to know how much profit you’ve turned. And they can add up to thousands in savings!