When you sell your home, the IRS allows a gain exclusion of up to $250,000 per taxpayer. That means you don’t owe tax on part or all of the profit from the sale of the property. But to accurately calculate your gain exclusion, you need to determine what your home’s “basis” is.
Functionally, the basis is the amount you have invested in an asset. So for your home, that’s the purchase price of the property. Your basis also includes the costs of improving the house while you’ve owned it. While you can’t include repair expenses, you can include improvements. One good rule of thumb for evaluating whether something is a repair or an improvement is that repairs tend to fix a problem while improvements are permanent changes that enhance the value of your home.
Here are a few examples of common improvements you’ll want to include in your home’s basis:
- Bathroom renovations
- Fence installations
- Room additions
- Lighting upgrades
- Kitchen remodels
- And more
By keeping track of these types of expenses, you’ll have an accurate basis when you go to sell your home. That can help ensure your gain exclusion is maximized.
Have questions? Call Taxation Solutions, Inc. to put our 40+ years of tax experience to work for you!