How Can Home Improvement Projects Offset Taxes When You Sell?
Nashua, NH Homeowner Looks to Plan Ahead
When you sell your home, you will owe capital gains tax on any profit that you make. This is the difference between the price that you originally bought the house at and the amount that you get selling the property. If you have been at the property for a substantial amount of time, the taxable amount may be significant. Home improvement projects that add value to the property and / or prolong the home’s life can be subtracted from the sale price, reducing the amount that will be subject to the capital gains tax.
A homeowner in Nashua was looking to sell her home. Having been at the property for many years, she was concerned about the tax implications that may go along with the sale of the home. For advice, she contacted the team at Merrimack Tax Associates.
Home Expenses that Can Offset the Capital Gains Tax on the Sale of a Property
The money invested in your home can be categorized as either improvements or repairs. A capital improvement is something that adds value to your home, prolongs its life, or offers new uses. This can include a kitchen renovation, addition to the house, or a new HVAC system. Even smaller dollar items such as installing a second water heater, home security system, or new windows would fall under this category. These types of capital improvements can be deducted from the profit of your home when it is sold, reducing the capital gains tax.
Unlike improvements, repairs do not reduce your capital gains tax. These are the expenses that do not add value to the home, but simply fix something that is broken or worn. This may include fixing a damaged gutter, replacing a broken window, or painting a room.
Tracking Home Improvements Expenses to Reduce Taxes
By being diligent and keeping track of the home improvement projects done to your property over the years, you can significantly reduce your tax burden when the property is sold. Keeping a folder with home improvement receipts can help to make this happen. Unfortunately, the homeowner in Nashua had not done this over the years. However, they were able to pull together many receipts for home improvement projects that had been done. Those qualifying projects can be deducted from the profit of the home when it sells, reducing the capital gains tax that is owed.