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TAX TIP: SAVE YOUR REMODELING RECEIPTS
Keeping comprehensive records of all remodeling expenditures can lessen the tax bite when you sell your home. At that time, the IRS allows a homeowner to add the cost of capital improvements to the original purchase price of the home. Using this higher 'adjusted basis' for calculating the gain at sale time trims the amount of taxable profit.
The IRS demands careful documentation, including receipts, canceled checks and official contracts. Do-it-yourselfers can count the cost of materials, but not the value of their own or any other unpaid labor. The IRS makes a distinction between standard repairs and maintenance (which cannot be added to the adjusted basis) versus improvements that add value, prolong the life of a home or adapt it to new uses. The IRS allows that when 'items that would otherwise be considered repairs are done as a part of extensive remodeling or restoration of your home, the entire job is considered an improvement.' Savvy homeowners may opt to defer some repairs and incorporate them into a larger renovation.
For specific details on deductible items, please contact your accountant.