As a homeowner, you may be asking, “Can I ever get a tax benefit out of all the money I’ve spent fixing up my house?” The answer may be yes.
You generally can’t deduct the cost of a new roof (or any other home improvement) in the year when you spend the money. But if you keep track of those expenses, they will help you reduce your taxes in the year when you finally sell your house.
Save When You Sell
If you make a profit when you sell your house, you will owe taxes on any capital gain above a certain amount. But how do you figure out if you have what the IRS considers a capital gain?
You take everything you paid for the house, the original purchase price, sales taxes, fees, and so on, and add the cost of all the improvements you have made over the years to get a grand total, which is known as the “adjusted basis.” Compare the adjusted basis with the sales price you get for the house and if you’ve made a profit, that gain may be taxable (if it is more than $250,000 for an individual or $500,000 for a married couple filing jointly). Alas, capital losses on personal residences are not deductible.
You can see it makes sense to keep track of whatever you spend to fix up, expand, or repair your house, so you can reduce or avoid taxes when you sell.
- Make a special folder to save all your receipts and records for any improvements you make to your home.
- If you’ve lived in your house for many years, and if area housing prices have been gradually going up over all those years, you may be facing a fairly large gain that would be minimized by including the improvements in the cost basis of the house.
- If you operate a business from your home or rent a portion of your home to someone, you may be able to deduct part of your home improvements as business expenses through depreciation.