Capital improvements are capital! Whenever you make improvements to your home that increase its value you are adding to the ledger of capital gains tax deductions you can make when you sell. The IRS considers a capital improvement something that not only adds to the home’s value, it prolongs the dwelling’s useful life or allows adaptation for new uses. The capital improvement is attached to the property. That means the installation of central air conditioning is considered a capital improvement, but interior decoration is not.
Capital improvements are a balancing act. If you’ve owned your home for ten years and replaced the carpet 8 years ago that’s a capital improvement. But – if you removed that carpet and installed wood floors, only the wood floors count as a capital improvement. The improvement must transfer upon the sale of the house.
Making Repairs Vs. Capital Improvements
It’s essential to distinguish