H is for Home Improvements.
Unlike the tax break that you get when you buy a house, generally, making repairs to your primary residence are not immediately tax advantageous. In most cases, repairs to your home increase your basis for purposes of calculating a gain or a loss at sale, but your run of the mill home repair expenses – even if significant – are not deductible on your federal income tax return.
So, for example, if you buy a house for $200,000, that’s your cost basis. Let’s assume that you make a capital improvement to your home – not simply painting your bedroom or changing the drapes – in other words, a change that adds permanent value to your home (examples might include adding a second story or attaching a garage). That changes your basis. If that change costs you $20,000, then your new basis is $220,000: $200,000 (original purchase price) + $20,000 (adjustment to basis) = $220,000. When you sell the house, you now figure your gain based on the new, adjusted basis of $220,000.
As with everything tax-related, there are some exceptions to the basic rules.
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