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Tax Benefits of Selling

When you go to sell your home someday, the IRS allows you to deduct home improvement costs from your profits before paying taxes on them. To take advantage of this, it is in your interest to track the amount that you spend on improvements. IRS home sale tax rules also enable qualifying taxpayers to exclude from federal taxation a large chunk of profit -- up to $250,000 for single taxpayers, $500,000 for married couples filing jointly.

For tax purposes, at the time of sale the IRS enables you to deduct the cost of improvements but not money spent on maintenance. What's the difference? Well there is a difference but, as with all matters on which the IRS has an opinion, that difference isn't always crystal clear.

  • Capital improvements are things that you do to your home that permanently increase its value and lengthen its life. Capital improvements include such things as landscaping your yard, adding a deck, purchasing new appliances (as long as you leave them when you sell), installing a new heating system or roof, remodeling and adding rooms, and so on.
  • Maintenance and repair expenses, in contrast, include those types of fix-up items that need to be done throughout your home from time to time. Maintenance and repairs include such things as fixing a leaky pipe or toilet, painting, paying someone to cut your lawn and pull weeds, and the like.

So, when you buy a home, keep handy a file folder into which you can dump receipts for your home improvement expenditures. If you're in doubt as to whether an expense is an improvement or a maintenance item, keep the receipt and figure it out when the time comes to sell your home.