As you may know, the tax laws allow a married couple to exclude up to $500,000 of gain on the sale of a principal residence ($250,000 for a single filer). When this exclusion was passed in 1997 it seemed like nobody would ever again have to worry about being taxed on the sale of their home.
Here’s something that can help. The gain on the sale of your residence is reduced by the cost of improvements you make to the home during all your years of residence. Unfortunately, too many homeowners fail to keep records of those improvements. It’s important to keep track of those improvements and to maintain documentation to substantiate your “basis” in your home.
An improvement adds to the value of the home or prolongs its useful life, Improvements must be distinguished from repairs, which maintain the home in good condition but don’t add to its value or prolong its life. Examples of repairs are repainting, fixing leaks, plastering and replacing broken window panes.
You may find it helpful to use the “Record of Home Improvements” spreadsheet. Keep it with your purchase closing statement and attach receipts, cancelled checks, copies of building permits and other relevant documentation for each improvement listed. If you did the work yourself, the costs will include parts and supplies and other out-of-pocket costs.
If it has been several years since the improvement was done and you can’t find the documentation, attach any evidence you can to substantiate that the improvement was done and how much it cost. For example, photos of the improvement can be helpful, especially if you can show before and after photos.
RECORD OF HOME IMPROVEMENTS
Home address: _________________________________________________________________
Date purchased: ________________________________________________________________
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Date of Improvement
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Description of Improvement
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$ Cost
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ROOM ADDITITONS – PATIO, BEDROOM, DECK, ETC…
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LAWN & GROUNDS – LANDSCAPING, DRIVEWAY, FENCING, ETC…
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HEATING & AIR CONDITIONING
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PLUMBING – WATER HEATER, SOFT WATER SYSTEM, ETC…
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INTERIOR – CARPETING, KITCHEN MODERNIZATION, ETC…
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MISCELLANEOUS
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Other improvements to look for:
Swimming pool, sprinkler system, storm windows, doors, new roof, central vacuum, satellite dish, security system, new furnace
ATTACH RECEIPTS AND OTHER DOCUMENTATION TO THIS RECORD
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