Good Records Can Reduce Capital Gains
August 8, 2022
Regardless of whether you’re entitled to $250,000 or $500,000 of exclusion when you sell your home, prices have gone up so much in the past two years, you may be approaching the limit where you might have to pay tax on the excess when you sell.
Any improvements you have made to the home during your ownership can be used to raise your basis in the home which will reduce your gain. It is worth the effort to start reconstructing the list, both big ticket items and lower priced items that qualify.
While repairs to your home do not count as improvements, other money which either materially adds value, appreciably prolongs the useful life of the property, or adapts a portion of the property to a new use will qualify. Hopefully, you have contracts and agreements on the major items and receipts on things over $75.
If you have photographs before and after the improvements were made, it can help serve as evidence that they were in fact made.
The best proof is to record the expenses and receipts as close to when they are made instead of having to dig through boxes and invariably, either not finding them or worse yet, forgetting what was done altogether.
Download more information on this from IRS Publication 523 and the Homeowners Tax Guide.