Most people don’t realize that you could very well owe capital gains taxes on any increase in the value of your house when you sell it. Lots of times you can roll this over into a new home and receive certain tax credits in some circumstances, but for the most part you can expect to be hit by a large tax bill if you’re not careful.
One incredibly cool tip that most people don’t know about is that you can reduce the capital gains tax on any profit from the sale of your home by documenting the cost of any improvements that you made to the house over the years. In this article I thought I would draw up a quick checklist of home improvements that you can use that will qualify for this tax benefit.
Improvements to the house that will qualify for this tax benefit include any new rooms that you added on to as well as any porches that you added, any closets, any laundry chutes, and any improvements you did to the attic or the basement. Built-in furnishings also qualify so if you added shelves or new floor coverings be sure to document that. Any equipment that you added may also qualify. These things include garbage disposals, fire alarms, intercoms, any major appliances that you added and things like that.
Plumbing, heating, air-conditioning improvements qualify as well. These things include any new plumbing fixtures such as sinks or tubs or even water softeners as well as tanks or pumps too. Also if you upgraded the heating system or the air conditioner or added an attic fan or a dehumidifier these count as well. And let’s not forget installation or any other energy conserving devices.
Structural work qualifies as well and this includes adding screen vents to the attic or replacing roofing or gutters or any exterior coverings whatsoever. If you added awnings or sunshades or shutter blinds or even storm doors or storm windows then these will qualify as well. If you added new doors or windows or added reinforcing rods around the house be sure to keep track of it. And also if you had any work done on the foundation to get rid of water leakage or settling then these things can qualify too.
Finally any improvements you’ve made to the grounds may qualify for this tax benefit as well. These things include flood lighting or lampposts or even barbecue pits or incinerators. Don’t forget about underground sprinkler systems or mailboxes too as these should qualify. Also if you paved any surfaces or enlarged your patio or added recreational facilities like a swimming pool or even a children’s playground then you should be in good shape as well.
The trick is to keep track of all the money spent on all of these different things. Then you simply add them up and add them to the original cost of the house which you then subtract from the price that you sold the house for thus reducing your capital gains tax owed. Of course you’re going to want to be sure to contact your accountant to make sure you follow the correct forms but regardless this is a great way to save a lot of money.