While filing away annual receipts to prepare for your tax appointment, make sure to keep a property file that won’t go to the shredder along with other tax documents. Property records for all improvements and repairs should be maintained as long as you own your home.
Capital improvements can reduce capital gains taxes due at time of sale, especially important for those of you who have been sheltering in place since the sixties.
Property values in SoCal have risen at a pace that could easily exceed the maximum $500,000 exclusion for married couples ($250,000 for singles). IRS tax rules let you add capital improvement expenses to the cost basis of your home at time of sale, lowering taxable capital gains.
The IRS defines a capital improvement as one that adds value to a home, prolongs its useful life, or adapts it to new uses. IRS Publication 523 has a list of eligible improvements, including everything from a new roof to a water heater or furnace.
There are limitations. The improvements must still be evident when you sell, so if you put in wallto-wall carpeting 10 years ago and then replaced it with hardwood floors five years ago, you can’t count the carpeting as a capital improvement.
Repairs like painting your house or fixing sagging gutters don’t count. The IRS describes repairs as things that are done to maintain a home’s good condition without adding value or prolonging its life.
Saving receipts for non-deductible property repairs can help you keep a home maintenance checklist schedule. Do you remember the last time you had your HVAC serviced? Or hired a chimney sweep to clean the fireplace?
Awell- organized list of regularly scheduled property maintenance records will score points with homebuyers at time of sale. Issues sometimes come up during property inspections, and having receipts for recent work done on the major systems of the home can come in handy. Keep all service contracts and warranties in the same property file in case you have to file a claim.
Because paper records and receipts fade with time and take up space, consider scanning and storing your home maintenance records on a flash drive or cloud based server. Digital copies are OK with the IRS as long as identical to the originals.
Adriana Donofrio • deasypennerpodley Glendora (626) 926-9700 • adonofrio@dppre.com
