Keeping Track of Home Improvements

If you're selling your home, then you are most likely repairing an improving many of its features beforehand. The money you spend making these improvements adds to the "basis" of your house, and can translate into a tax write-off in the end. Your capital gains tax is based on the difference between the sales price and the basis of your home. So it is important to know what counts as adding to this basis. The IRS states that the following add to the basis of your home:

1. Improvements
2. Additions
3. Special assessments for local improvements.
4. Amounts spent after a casualty to restore damaged property.

According to the IRS, improvements are those items that "add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of improvements to the basis of your property." So almost any money spent enhancing your house counts. This ranges from refinishing your kitchen to adding a new room over your garage to replacing your septic system. You should make many such improvements (albeit mostly on a smaller scale) prior to selling your home. So it is important to keep track of them to save money when it comes tax time.

Keeping Records

It is important to document as and keep receipts from as many of the changes you make as possible. The rule of thumb with record keeping is: The more the better! Even if all of your receipts and records are not well organized, having them all will free you of potential problems down the road.