Capital improvement
A significant upgrade that adds value or extends the life of the property: a new roof, a room addition, a full kitchen remodel. Added to cost basis rather than deducted in one year.
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See how it worksWhere this comes up: closing
Part 1 of 4
Why a seller cares
Improvements add to your basis and lower the taxable gain, which is why the receipts for a roof, an addition or a kitchen matter at sale. Repairs do not count; the line between them is the tax code's, not yours.
Part 2 of 4
A simple example
Over twelve years you replaced the roof, added a deck and remodeled the kitchen for $48,000 total. Your basis rises by $48,000.
| The spending | Is it a capital improvement? |
|---|---|
| A new roof, $14,000 | Yes; adds to basis |
| A kitchen remodel, $28,000 | Yes |
| Repainting and a furnace repair | No; repairs and upkeep |
Improvements raise the basis. Keeping the receipts is what makes them count.
Part 3 of 4
What people get wrong
That everything spent on the house lowers the gain. Only improvements do; maintenance is the cost of living there.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines capital improvement in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
Organize my saleFree to set up. Pay once when you list: $89 or $189. 7-day refund.