Taxation: maintenance vs. improvements? HOW you spend on your home makes a difference, when it comes to taxation and potential gains. Repairs to maintain your homes condition are not deductible (unlike rental property owners who can deduct repairs as an operating expense).On the other hand, capital improvements to a home will increase the basis and therefore affect the gain when you sell, which may save taxes.
Additions to a home or other improvements that have a useful life of more than one year may be considered an increase to basis or cost of the home. Other increases to basis may include special assessments for local improvements like sidewalks or streets and amounts spent after a casualty loss to restore damage that was not covered by insurance.
Unlike repairs, improvements add to the value of a home, prolong its useful life or adapt it to new uses. Home Improvements may be considered as:
- the addition to or alteration
- remodeling, or
- replacement of a building or part of a building or a structure adjacent to that building
- or an improvement to land adjacent to the building
There's a great explanation and example to help illustrate the equation on nolo.com
- it may help to check it out. Remember that to qualify, the dwelling cannot be used for income as a rental property. So, rest assured, your improvements are a great thing, now and for the future
(just remember that unless you maintain the improvements and the rest of your home, your wallet will have little to show for all your hard work!). You can read more about improvements and see examples beginning on the bottom of page 8 of IRS Publication 523
. For a form to keep track of money you spend, print this Improvement Register