Reduce Your Tax

Do home improvements reduce tax on capital gains?

You can reduce the amount of capital gains subject to capital gains tax by the cost of home improvements you’ve made to your beautiful Tahoe home. You can add the amount of money you spent on any home improvements—such as replacing the roof, building a deck, replacing the flooring, or finishing a basement—to the initial price of your home to give you the adjusted cost basis. The higher your adjusted cost basis, the lower your capital gain when you sell the home.

For example: if you purchased your home for $200,000 in 1990 and sold it for $550,000, but over the past three decades have spent $100,000 on home improvements. That $100,000 would be subtracted from the sales price of your home this year. Instead of owing capital gains taxes on the $350,000 profit from the sale, you would owe taxes on $250,000. In that case, you’d meet the requirements for a capital gains tax exclusion and owe nothing.

Take-home lesson: Make sure to save receipts of any renovations, since they can help reduce your taxable income when you sell your beautiful Tahoe home. However, keep in mind that these must be home improvements. You can’t take a deduction from income for ordinary repairs and maintenance on your house.

Definitely discuss this with your tax professional – we are experts in Tahoe real estate, not taxes!