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Subject:  Home Improvements: What costs can you capitalize Date:  11/13/2012  3:41 PM
Author:  joelcorley Number:  116906 of 127637


I can and probably will research this on the IRS site myself; but I thought I would ask here to see if I could shorten my research time.

I just purchases a townhouse. The property was in a fairly ideal location; but was in need of some deferred maintenance and improvements. Arguably it was move-in ready; but I did not feel it really met my standards.

Ultimately I bought the place and am about to move into it. However, I spent a good deal of money on repairs - some identified by the inspection and some discovered later - and improvements. I'm wondering what, if anything, could be counted toward the capital cost of the property when I eventually sell it. In other words, I need to know what records will be worth keeping.

The single largest expense is the new flooring and stair treads. I replaced all the old carpet with handscraped bamboo floors. This is clearly an improvement to the property and should also increase the sale price when it eventually occurs. I would think this improvement might be viewed as a capital expense.

However, I also had the house repainted, additional recessed lighting installed and lighting in the crawl space, replaced the powder room vanity and installed new baseboard throughout the house. These are items that provide some improvement in the overall attractiveness of the house; but I'm not sure that they significantly add to the resale.

Finally, there were items that I had to repair or replace - the most expensive item being a collapsed storm drain. These items were either not apparent at first or were simply deferred maintenance. I suspect these items add no resale value to the house and do not add to the appearance of the house.

For those care to keep count, I suspect I would only get about 40 cents on the dollar out of these expenditures; but they were either necessary or desirable to make the property meet my goals.

My question is simply, Can I count any of this as part of my cost basis (for tax purposes) when I resale the house?

It's not like I built an addition to the property; but I'm fairly sure that if I had made these changes as part of preparing the house for resale, I could probably deduct (nearly) all of it. But I also know that if I make repairs during the course of ownership, those repairs are simply an expense.

Your thoughts? Obviously I'm going to go check the IRS website when I get a chance; but I thought some of you might have experience with this issue and could comment. So do you think there is any documentation here worth keeping?

- Joel
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