If home improvements are made to a primary residence, those improvements are NOT deductible in the year the money is spent. Instead, those expenses can be used to reduce taxes when the home is sold. That’s because improvements increase the basis in a home, effectively lowering the capital gains. However, this is often irrelevant these days due to the Capital Gains Exclusion allowed for primary homes.
If home improvements are made on a rental property, those improvements ARE deductible. However, they must be capitalized and depreciated over several years, rather than fully deducted in the year incurred. That’s why it’s important for landlords to distinguish between improvements and repairs. Whereas improvements are deducted over time, repairs can be fully deducted in the year paid.
In any event, it’s important to keep good records so you have a paper trail of your expenditures.
Feel free to contact us with any of your tax and home loan questions...we’re here to help!
Just last month we had the pleasure of helping a young couple purchase their first home. A few details of interest:
- We guided the couple through their options of purchasing a primary home versus a rental property, so they could understand which made better sense for their situation.
- We advised them on the income tax implications of their home purchase, so they knew all financial aspects of their decision to buy this home.
- We closed escrow in only 23 days, even with the latest government regulations that are causing delays for most lenders!
In our clients’ words: “Great experience! With my wife and I expecting our first child within two weeks of our proposed closing date, the team was able to move up the closing date by more than a week and make it stress free in the process.”