Did you know that capital improvements can impact your property taxes now and your capital gains taxes later when you sell?
Many homeowners are unaware that tracking home improvements can be a key factor in reducing their tax burden—both through tax appeals and when calculating profit at sale.
How Capital Improvements Affect Your Taxes
1- Property Tax Appeals:
If your home was recently reassessed and you believe the value is too high, capital improvements can help justify a fair assessment by distinguishing between routine maintenance and true value-adding upgrades.
2- Capital Gains Tax Reduction:
When selling your home, capital improvements increase your cost basis, which lowers your taxable profit and helps you keep more of your hard-earned equity.
What Counts as a Capital Improvement?
A capital improvement is any project that adds value, extends the life of your home, or adapts it for a new use. Some common examples include:
- Kitchen and bathroom remodels
- Roof replacements and HVAC system upgrades
- New decks, patios, fences, or landscaping enhancements
- Smart home features like security systems and video doorbells
- Energy-efficient windows, solar panels, and insulation upgrades
- Accessibility modifications for individuals with disabilities (may also be tax-deductible)
Why Keeping Records Matters
Every dollar spent on a capital improvement increases your cost basis, reducing the taxable portion of your profit when you sell. Keeping detailed records, receipts, and invoices ensures you have the documentation needed for a tax appeal or when selling your home.
Why This Matters Now
Home values have appreciated rapidly over the past decade, and many homeowners are finding themselves over-assessed for property taxes or exceeding the capital gains exclusion limits when selling ($250,000 for single filers, $500,000 for married couples). By tracking and documenting capital improvements, homeowners can:
- Support property tax appeals and potentially lower tax bills
- Reduce taxable gains when selling
- Maximize long-term savings
Watch the ABCs of Senior Housing Webinar on Tax Appeals
Want to learn more? Watch my recent ABCs of Senior Housing webinar, where we break down tax appeals, capital improvements, and strategies to save money on your property taxes.
Thinking About Selling? Find Out What Your Home is Worth!
If you’re considering selling, knowing your current home value is a great first step. Get a free estimate today: Discover Your Home’s Value.
Disclaimer: When it comes to calculating capital gains on the sale of your home, it’s important to get accurate, personalized advice. While our blog provides helpful insights, it is not a substitute for professional legal or tax guidance. Always consult with a qualified attorney or tax professional to ensure you understand your unique situation and comply with all applicable laws.
