Capital improvements can reduce this tax by increasing the cost basis for a home. The original cost basis is the purchase price of the home, including closing and other costs. Any capital improvements that are done after closing are added to this cost basis.
What constitutes a real property capital improvement?
General Principle of Capitalization: The IRS indicates what constitutes a real property capital improvement as follows: The proposed regulations require capitalization of amounts paid to acquire, produce, or improve tangible real and personal property, including amounts paid to facilitate (closing costs) the acquisition of tangible property.
Can capital improvements be depreciated?
Capital improvement costs can be depreciated over a period of years, rather than waiting until the property is sold. When a home is sold, the seller may have to pay capital gains taxes on the difference between the sale price and the cost basis. Capital improvements can reduce this tax by increasing the cost basis for a home.
