What Home Improvements Are Tax Deductible?

which home improvements are tax deductible

Keeping track of the cost of capital improvements to your home can really pay off on your tax return when it comes time to sell.

It’s no secret that finishing your basement will increase your home’s value. What you may not know is the money you spend on this type of so-called capital improvement could also help lower your tax bill when you sell your house.

Tax rules let you add capital improvement expenses to the cost basis of your home. Why is that a big deal? Because a higher cost basis lowers the total profit — capital gain, in IRS-speak — you’re required to pay taxes on. In other words, you might have a tax break coming. Here’s how to know what home improvements are tax deductible.

The tax break doesn’t come into play for everyone. Most homeowners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to track capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move.

What Home Improvements Are Tax Deductible?

Some examples of home improvements you can deduct may include:

  • New bathroom
  • New addition
  • Basement finishing
  • New furnace
  • Master suite addition

Although you may consider all the work you do to your home an improvement, the IRS looks at things differently. A rule of thumb: A capital improvement increases your home’s value, while a non-eligible repair just returns something to its original condition. According to the IRS, capital improvements have to last for more than one year and add value to your home, prolong its life, or adapt it to new uses.

Capital improvements can include everything from a new bathroom or deck to a new water heater or furnace. Page 9 of IRS Publication 523 has a list of eligible improvements.

There are limitations. The improvements must still be evident when you sell. So if you put in wall-to-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.

There can be a fine line between a capital improvement and a repair, says Erik Lammert, former tax research specialist at the National Association of Tax Professionals. For instance, if you replace a few shingles on your roof, it’s a repair. If you replace the entire roof, it’s a capital improvement. Same goes for windows. If you replace a broken window pane, repair. Put in a new window, capital improvement.

One exception: If your home is damaged in a fire or natural disaster, everything you do to restore your home to its pre-loss condition counts as a capital improvement.

How Capital Improvements Affect Your Gain

To figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name a few. You should be able to find all those costs on the settlement statement you received at your closing.

Next, you’ll need to account for any subsequent capital improvements you made to your home. Let’s say you bought your home for $200,000 including all closing costs. That’s the initial cost basis. You then spent $25,000 to remodel your kitchen. Add those together and you get an adjusted cost basis of $225,000.

Now, suppose you’ve lived in your home as your main residence for at least two out of the last five years. Any profit you make on the sale will be taxed as a long-term capital gain. You sell your home for $475,000. That means you have a capital gain of $250,000 (the $475,000 sale price minus the $225,000 cost basis). You’re single, so you get an automatic exemption for the $250,000 profit. End of story.

Here’s where it gets interesting. Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you’ve saved about $5,000 in taxes based on the  15% tax rate on capital gains. Well worth taking an hour a month to organize your home improvement receipts, don’t you think?

The top rate for most homesellers remains 15%. For sellers in the 39.6% income tax bracket, the cap gains rate is 20%.

Watch Out for These Basis-Busters

Some situations (below) can lower your basis, thus increasing your risk of facing a tax bill when you sell. Consult a tax adviser.

  • If you use the actual cost method and take depreciation on a home office, you have to subtract those deductions from your basis.
  • Any depreciation available to you because you rented your house works the same way.
  • You also have to subtract subsidies from utility companies for making energy-related home improvements or energy-efficiency tax credits you’ve received.
  • If you bought your home using the federal tax credit for first-time homebuyers, you’ll have to deduct that from your basis too, says Mark Steber, chief tax officer at Jackson Hewitt Tax Services.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

By: Donna Fuscaldo for HouseLogic

Open House Timeline: Countdown to a Successful Sale

get fluffy white towels to create a spa-like feeling

An inviting open house can put your home on buyers’ short lists.

Get ready for your open house — stress-free — by starting early and breaking down your to-do list into manageable chunks. Use this timeline of 35 tips and your house will stand out from the competition on open house day.

Four weeks before the open house

  • Ask your parents to babysit the kids the weekend of the open house. Then book a reservation for your pet with the dog sitter or at the kennel. Having everyone out of the house on the day of will help you keep your home tidy and smelling fresh. Plus, no dogs and no kids equal more time for last-minute prep.
  • Line up a contractor to take care of maintenance issues your real estate agent has asked you to fix, like leaking faucets, sagging gutters, or dings in the walls.
  • De-clutter every room (even if you already de-cluttered once before). Don’t hide your stuff in the closet—buyers will open doors to size up closet space. Store your off-season clothes, sports equipment, and toys somewhere else.
  • Book carpet cleaners for a few days before the open house and a house cleaning service for the day before. Otherwise, make sure to leave time to do these things yourself a couple of days before.

Three weeks before the open house

  • Buy fluffy white towels to create a spa-like feel in the bathrooms.
  • Buy a front door mat to give a good first impression.
  • Designate a shoebox for each bathroom to stow away personal items the day of the open house.

Two weeks before the open house

  • Clean the light fixtures, ceiling fans, light switches, and around door knobs. A spic-and-span house makes buyers feel like they can move right in.
  • Power-wash the house, deck, sidewalk, and driveway.

One week before the open house

  • Make sure potential buyers can get up close and personal with your furnace, air-conditioning unit, and appliances. They’ll want to read any maintenance and manufacturer’s stickers to see how old everything is.
  • Clean the inside of appliances and de-clutter kitchen cabinets and drawers and the pantry. Buyers will open cabinet doors and drawers. If yours are stuffed to the gills, buyers will think your kitchen lacks enough storage space.
  • Put out the new door mat to break it in. It’ll look nice, but not too obviously new for the open house.

Week of the open house

  • Buy ready-made cookie dough and disposable aluminum cookie sheets so you don’t have to take time for clean up after baking (you can recycle the pans after use). Nothing says “home” like the smell of freshly baked cookies.
  • Buy a bag of apples or lemons to display in a pretty bowl.
  • Let your real estate agent know if you’re running low on sales brochures explaining the features of your house.
  • Clean the windows to let in the most light possible.
  • Mow the lawn two days before the open house. Mowing the morning of the open house can peeve house hunters with allergies.

Day before the open house

  • Make sure your real estate agent puts up plenty of open-house signs pointing in the right direction and located where drivers will see them. If she can’t get to it on the Friday before a Sunday open house, offer to do it yourself.
  • Put away yard clutter like hoses, toys, or pet water bowls.
  • Lay fresh logs in the fireplace.

Day of the open house

  • Put checkbooks, kids’ piggybanks, jewelry, prescription drugs, bank statements, and other valuables in the trunk of your car, at a neighbor’s house, or in your safe. It’s rare, but thefts do happen at open houses.
  • Set the dining room table for a special-occasion dinner. In the backyard, uncover the barbeque and set the patio table for a picnic to show buyers how elegantly and simply they can entertain once they move in.
  • Check any play equipment for spider webs or insect invasions. A kid screaming about spiders won’t endear buyers to your home.
  • Clean the fingerprints off the storm door. First impressions count.
  • Put up Post-It notes around the house to highlight great features like tilt-in windows or a recently updated appliance.
  • Remove shampoo, soap, toothbrushes, and other personal items from the bathtub, shower, and sinks in all the bathrooms. Store them in a shoebox under the sink. Removing personal items makes it easier for buyers to see themselves living in your house.
  • Stow away all kitchen countertop appliances.

bake cookies, put out apples and lemons on counter, and brew a pot of coffee

One hour before the open house

  • Bake the ready-to-bake cookies you bought earlier this week. Put them on a nice platter for your open house guests to eat with a note that says: “Help yourself!”
    Hang the new towels in the bathrooms.
  • Put your bowl of apples or lemons on the kitchen table or bar counter.
  • Pick up and put away any throw rugs, like the bath mats. They’re a trip hazard.

15 minutes before the open house

  • Open all the curtains and blinds and turn on the lights in the house. Buyers like bright homes.
  • Light fireplace logs (if it’s winter).
  • Didn’t get those cookies baked? Brew a pot of coffee to make the house smell inviting.

During the open house

Get out of the house and let the REALTOR® sell it! Potential buyers will be uncomfortable discussing your home if you’re loitering during the open house. Take advantage of your child- and pet-free hours by treating yourself to something you enjoy — a few extra hours at the gym, a trip to the bookstore, or a manicure.

By Dona DeZube. Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Are you putting your house up for sale?
Please give me a call – with my years of experience, I have a wealth of knowledge to help you get your house sold!  Lucy Garber – (310) 293-4866.

5 Easy DIY Weekend Projects for Under $300

Whether you are planning to put your house on the market and are trying to improve its curb appeal, OR if you just want to enjoy your home a bit more, here are some great do-it-yourself ideas you can do over the weekend for under $300!


Most of the cost of these DIY weekend projects is in the materials. The labor — that’s you — is free. All you need now are the hours. But, hey, you’ve got two full days — plenty of time to be a superhero weekend warrior and grab some R&R.

Project #1: Add a Garden Arbor Entry

The setup: Install an eye-catching portal to your garden with a freestanding arbor. It’ll look great at the end of a garden path or framing a grassy area between planting beds.

Specs and cost: Garden arbors can be priced up to thousands of dollars, but you can find nice-looking kits in redwood, cedar, and vinyl at your local home improvement or garden center for $200 to $300. Typical sizes are about 7 feet high and 3 to 4 feet wide. You’ll have to assemble the kit yourself.

Tools: Screwdriver; cordless drill/driver; hammer; tape measure. Kits come pre-cut and pre-drilled for easy assembly, and usually include screws. If fasteners aren’t included, check the materials list before you leave the store.

Time: 3 to 5 hours

Project #2: Install a Window Awning

The setup: Summer is super, but too much sunlight from south- and west-facing windows can heat up your interiors and make your AC work overtime. Beat that heat and save energy by using an awning to stop harsh sunlight before it enters your house.

Specs and cost: Residential awnings come in many sizes and colors. Some are plastic or aluminum, but most are made with weatherproof fabrics. They’re engineered for wind resistance, and some are retractable. A 4-foot-wide awning with a 2.5-foot projection is $150 to $250.

Tools: Cordless drill/driver; adjustable wrench; tape measure; level. You can install an awning on any siding surface, but you’ll need a hammer drill to drill holes in brick. To prevent leaks, fill any drilled holes with silicone sealant before you install screws and bolts.

Time: 3 to 4 hours

Project #3: Screen Off Your Air Conditioner from View

The setup: Air conditioning is great, but air conditioner condensers are ugly. Up your curb appeal quotient by hiding your AC condenser or heat pump unit with a simple screen.

Specs and costs: An AC screen is typically three-sided, about 40 inches high, and freestanding — you’ll want to be able to move it easily when it comes time to service your HVAC. For about $100, you can make a screen yourself using weather-resistant cedar or pressure-treated wood to build three frames, and filling each frame with plastic or pressure-treated lattice.

Or, buy pre-made fencing panels. A 38-inch-by-38-inch plastic fencing panel is about $50.

Tools: Hammer; saw; cordless drill/driver; measuring tape; galvanized wood screws.

Time: Build it yourself in four to six hours. Install pre-made fencing in one to two hours.

Project #4: Add Garage Storage

The setup: Shopping for garage storage solutions is definitely a kid-in-the-candy-store experience. There are so many cool shelves, hooks, and hangers available that you’ll need to prioritize your needs. Take stock of long-handled landscape tools, bikes, paint supplies, ladders, and odd ducks, such as that kayak. Measure your available space so you’ll have a rough idea of where everything goes.

Specs and cost: Set your under-$300 budget, grab a cart, and get shopping. Many storage systems are made to be hung on drywall, but hooks and heavy items should be fastened directly to studs. Use a stud finder ($20) to locate solid framing.

If your garage is unfinished, add strips of wood horizontally across studs so you’ll have something to fasten your storage goodies to. An 8-foot-long 2-by-4 is about $2.50.

Tools: Cordless drill/driver; hammer; level; measuring tape; screws and nails.

Time: This is a simple project, but not a fast one. Figure six to 10 hours to get everything where you want it, plus shopping. But, oh the fun in putting everything in its place!

If you want to do something really inexpensive, DIY a simple overhead bin system. All you need is plywood, plastic bins, some tools, and a weekend.

Project #5: Edging Your Garden

The setup: Edging is a great way to define your planting beds, corral garden mulch, and to separate your lawn from your garden or patio.

Specs and cost: Wood and metal edging looks like tiny fencing; they’re 4 to 6 inches high. Some include spikes that hold the edging in position; other types must be partially buried. Cost is $1 to $5 per foot.

Plastic edging can be molded and colored to mimic brick, wood, and stone. About $20 for 10 feet.

Concrete edging blocks are smooth, or textured to resemble stone. $15 to $25 for 10 feet.

Real stone edging is installed flush with the surrounding grade in a shallow trench on a bed of sand, so digging is required. Stone is sold by the ton and prices vary by region. You’ll need about one-third of a ton of flagstone to make an 8-inch-wide edging 50 feet long, costing $150 to $200.

Tools: Shovel; wheelbarrow; tin snips (for cutting plastic edging); work gloves.

Time: Pre-made edging will take two to three hours for 50 feet; stone will take six to 10 hours.

By: John Riha for Houselogic

What to Do With a Tax Refund: 3 Ideas That’ll Practically Double Your Money If You’re a Homeowner

3 ideas on how to use your tax refund to save you a bundle on your home

If this year is anything like the last, almost 7.2 million Americans will get a tax refund this spring averaging around $3,000. If you’re a homeowner getting this refund, you’re fortunate because you’ve got more creative ways to invest it for a profit. Doesn’t matter if you’re selling, staying put, or stuck in the middle. Here are three homeowner-only options to grow that refund:

1. If You’re Early Into Your Mortgage
It may not be as instantly gratifying as a treehouse vacation in Costa Rica, but spending your tax refund to pay down your mortgage principal could save you enough funds to take a splurge-loaded vacation a bit later.

Let’s assume you have a 30-year-loan at the average loan amount of $292,000, a 4.5% interest rate, and you’re getting that average refund of about $3,000. If you apply that “found” money to your principal each year, CPA Micah Fraim of Roanoke, Va., says you can shave years off your mortgage — in this case, nearly four. That’s about 95 mortgage payments you won’t need to make! Even better is the more than $70,000 that you’ll save in interest payments over the life of the loan.

If you don’t want to make an annual commitment, think about this: Make that payment just once and you’ll cut seven months off your payments and save more than $8,000 in interest. And when you decide to sell, you’ll have more equity.

2. If You’re Planning to Sell
Invest it in staging, and you may be surprised by how quickly your home gets plucked from the market.

“Staging lets prospective buyers see the space as their own, instead of as belonging to the people who currently live there,” said Ashley Lewkowicz, owner of Ashley Kay Design in Bucks County, Pa.

“A home that’s not staged can sit on the market for six months or more,” she added. “A home I recently staged sold in less than two.”

Not only is a faster sale better for your bank account in terms of saved mortgage payments and utility bills, but a drawn-out listing can cause a home’s price to wilt. That makes those throw pillows, decorative bath salts, and rented furniture way worth the investment.

For a large, suburban home in a major metro area, staging can cost about $2,000 upfront, and then about $500 per month for furniture and accessory rentals, according to Lewkowicz. But a faster sale at a higher price can definitely more than double your money over the course of the sales process.

And most staging can be accomplished with simple little touches.

3. If You’re a Home Improvement DIYer
Who knew your home could be your own personal ATM? For many DIYers, putting that $3,000 tax return into small home improvements can result in getting far more than their investment out of the house later.

  • A new steel front door costs about $250, but can add about $1,500 when you sell.
  • New wood flooring costs about $1,770, but is worth $5,000 when you sell.
  • Even new insulation, which costs about $700, can recoup about $2,000 at sale.

If you’re willing to scope materials yourself and put in a little elbow grease, your tax return can fund a renovation for you to enjoy now and reap the financial benefits later.

By: Alaina Tweddale on HouseLogic.com

Grow Your Own California Native Food

Learn about CA native food plants you can grown in pots

Nettle cream soup

Out of the Wilds and Into Your Garden, Native Foods on the Small Side

Torrance is a great city in which to live. The city has many programs for individuals, families and kids.  One of Torrance’s great treasures is the Madrona Marsh Preserve and Nature Center, one of the last marshlands in the area, and great natural habitat for birds, small animals and plants.

Learn about California native food plants for containers in this Saturday’s class, which is part of the free Native Plant Gardening series at Madrona Marsh Nature Center in Torrance.

Instructor: CSUDH Professor Connie Vadheim

When:
Saturday, March 5, 2016
10:00 a.m. – Noon

Location:
Madrona Marsh Nature Center
3201 Plaza Del Amo
Torrance, CA 90503

After the presentation, Connie will lead the class through the nature center’s native plant garden to illustrate key points and inspire further discussion. Handouts are included.

This class is best for adults.

Free! Donations are greatly appreciated.

For more information please contact the Madrona Marsh Nature Center at 310-782-3989.
Friends of Madrona Marsh website.