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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2421
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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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: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.


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.

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