Home Improvement, Taxes, and Home Sales

If you make a profit when you sell your house you should expect to owe a capital gains tax on any amount above your cost basis. The following is a brief description of how to estimate what the IRS considers your capital gain.

You take everything you paid for the house -- the original purchase price, sales taxes, and all the settlement and lender fees and add the cost of all the improvements you have made over the years. This total is known as the "adjusted basis." Compare the adjusted basis with the sales price you get for the house and if you made a profit then that gain may be taxable. The government does allow a $250,000 tax-free exemption for an individual or $500,000 for a married couple filing jointly. Unfortunately, capital losses on personal residences are not deductible.

You will have to prove that you actually made investments in your property, so keep track of whatever you spent to repair or remodel your house to offset any taxes when you finally decide to sell. And if you operate a business from your home or rent a portion of it to a third-party, you may be able to deduct part of your improvements as business expenses through depreciation.

• Tax Aspects of Home Ownership
• Tax Aspects of Rental Properties

Tax laws are subject to change and vary from state to state. Oyster Realty does not warrant the validity or accuracy of any information regarding tax law and allowances. If you are planning for the purchase or sale of a property please consult with a reputable financial or tax advisor.