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- Making Capital Gains Taxes Disappear on a Profitable Home Sale - May 4, 2020
A huge tax break in the Internal Revenue Code is provided for the sale of your principal residence. You can avoid up to $250,000 if you are single or up to $500,000 of gain if you are married filing jointly.
However, this might not be enough if your home has significantly appreciated. The key is to keep track of improvements over the years that increase your basis in your home and thus reduce your gain. Knowing what is an improvement and keeping receipts for them will significantly lower your tax. This becomes particularly important in 2013 and thereafter when some taxpayers will pay an extra 3.8% surcharge on the gain from the sale of their home above the exclusion. Thus here are some ideas for items that you should add to your basis:
A new pool, deck, finished basement or attic, addition of new plumbing, heating or air conditioning system, new fireplace, new skylight, new room or sunroom, new sprinkler system, new lighting whether outdoor or indoor, new storage building, new siding, new windows, new storm doors, new landscaping, radon mitigation costs, new roof, new flooring, new counter tops, new tiles in bathroom etc.
Tip: Repairs such as fixing gutters, painting, re-plastering walls, replacing broken windows etc aren’t added to basis. HOWEVER, if the repair is combined with an improvement in the bill, the entire cost can be treated as an improvement.