How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Anne Your Own Question
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
5242771
Type Your Tax Question Here...
Anne is online now
A new question is answered every 9 seconds

I spent 100K on home improvements on the home I lived in

Customer Question

I spent 100K on home improvements on the home I lived in for 17 years and sold last year. Do i get any payback for that on my taxes this year?
Submitted: 8 months ago.
Category: Tax
Expert:  Anne replied 8 months ago.

Hi

I'm Anne. I've been preparing taxes for 27 years and I'll be happy to help you.

If you're asking do you get a break on your taxes, it depends on how you look at this.

You can exclude up to $250,000 of PROFIT on the sale of your home if you lived in it as your principle residence for at least 3 out of the 5 prior years, which it sounds like you've done. (You may exclude up to $500,000 if you are married and you both lived in the home as your principle residence for 3 out of the last 5 prior years and you file jointly.)

So, did you get to write off the $100K you spent in improvements? This is where I said it depends on how you look at it.

'You added $100K to the basis of your house, so you could have a larger profit without having to pay tax on it.

Were you able to get a larger selling price due to the improvements?

Where this pays off is in the exclusion. You increase the basis of your home, and you get a higher selling price. So the PROFIT ratio is larger......For example..(and this is based on you filing single, but the theory remains the same even if you are married and filing joint)....let's say you purchased your home for $50K, did very little to it, but sold it for $400K.

$400K (selling price)-$50K cost basis = $350K profit

You can exclude the first $250K in profit, and you will pay capital gains tax on $100K.

However, let's say you purchased the home for the original $50K (above) and you did $100K in improvements. You sell the home for the $400K (above), now you can exclude ALL of the gain.

$400K (selling price) - $150K (new cost basis with $100K improvements) = $250K, the magic $ amount you get to exclude.

Also, you have to look at it that it is SO much better to NOT pay tax on ANY $ amount than to get some sort of credit which is always only a %.

So the answer to your question is really, yes. This raised your cost basis in the home, allowing you to (hopefully) sell the home for a higher price, and reduce the PROFIT margin because you increased your cost basis in the home by $100K, and walking away with more $ that you don't have to pay any tax on is better than ANY credit.

I really hope that I laid this out in a way that makes sense to you.

If you have further questions, please post them here & I'll be notified.

If this answer has helped you, then please take the moment to rate positive by clicking on the stars.

It is ONLY through positive ratings that we are compensated for our time & Knowledge.

Thank you for choosing justanswer.

Related Tax Questions