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home improvements

Q&A: More on those lost home improvement receipts

January 21, 2025 By Liz Weston

Dear Liz: You recently answered a question from a home seller who had lost documentation about improvements. The improvements most likely required building permits, which would have indicated the scope of improvements and, possibly, the cost as well. The local building department will have copies of those permits on file, and they can be obtained at a modest cost.

Answer: Thank you. The original letter writer had lost their documents in a house fire, a circumstance now shared by far too many in the Los Angeles area, thanks to the recent wildfires.

To recap, the value of qualifying home improvements can reduce the taxable gain when a house is sold. But if audited, sellers probably would need some kind of proof the work was done.

Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, suggested asking any contractors that were hired to provide verification of the projects and to check with the property tax assessor to see if the improvements were reflected in the home’s assessment. Photos of the home reflecting the improvements could also help in an audit, Luscombe says.

Filed Under: Q&A, Real Estate, Taxes Tagged With: capital gains tax, home improvements, home sale exclusion

Q&A: When receipts of home renovations are lost, is the tax break gone too?

January 13, 2025 By Liz Weston

Dear Liz: I have sold my family home recently after almost 50 years. I had done lots of improvements throughout those years. Due to a fire 15 years ago, all the documentation for these improvements has been destroyed. How do I document the improvements for the capital gains tax calculation?

Answer: As you probably know, you can exclude $250,000 of capital gains from the sale of a principal residence as long as you own and live in the home at least two of the previous five years. The exclusion is $500,000 for a couple.

Once upon a time, that meant few homeowners had to worry about capital gains taxes on the sale of their home. But the exclusion amounts haven’t changed since they were created in 1997, even as home values have soared. Qualifying home improvements can be used to increase your tax basis in the home and thus decrease your tax bill, but the IRS probably will demand proof of those changes should you be audited.

You could ask any contractors you used who are still in business if they will provide written verification of the work they performed, suggests Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. You also could check your home’s history with your property tax assessor to see if its assessment was adjusted to reflect any of the improvements.

At a minimum, prepare a list from memory of the improvements you made, including the year and the approximate cost. If you don’t have pictures of the house reflecting the changes, perhaps friends and relatives might. This won’t be the best evidence, Luscombe concedes, but it might get the IRS to accept at least some increase in your tax basis.

If you’re a widow or widower, there’s another tax break you should know about. At least part of your home would have gotten a step-up in tax basis if you were married and your co-owner spouse died. In most states, the half owned by the deceased spouse would get a new tax basis reflecting the home’s current market value. In community property states such as California, both halves of the house get this step-up. A tax pro can provide more details.

Other homeowners should take note of the importance of keeping good digital records. While documents may not be lost in a fire, they may be misplaced, accidentally discarded or (in the case of receipts) so faded they’re illegible. To make sure documents are available when you need them, consider scanning or taking photographs of your records and keeping multiple copies, such as one set in your computer and another in a secure cloud account.

Filed Under: Q&A, Real Estate, Taxes Tagged With: capital gains taxes, financial records, home improvements, home sale exlusion, record keeping

Q&A: Credit for time spent on a DIY home project?

May 6, 2024 By Liz Weston

Dear Liz: My husband remodeled all of the bathrooms in our home. We have receipts for the materials we purchased so that we can reduce our capital gains when we sell our home. Can we claim my husband’s time as labor costs for the home improvements?

Answer: No.

You can add the cost of improvements to your tax basis, which will be deducted from the sale amount to determine your potentially taxable capital gains. But you can’t add to your tax basis the value of your own labor, or any labor for which you didn’t pay.

Filed Under: Q&A, Taxes Tagged With: capital gains taxes, home improvement costs, home improvements, home sale, home sale profits, Taxes

Thursday’s need-to-know money news

April 14, 2022 By Liz Weston

Today’s top story: Small home fixes can have a big impact on safety. Also in the news: A new episode of the SmartMoney podcast on student loan debt, why you need to inspect the used car you bought sight unseen, and check whether your Toyota or Lexus is part of a massive recall.

Small Home Fixes Can Have a Big Impact on Safety
If it ain’t broke, maybe you should fix it anyway.

Smart Money Podcast: How We Got to $1.75 Trillion in Student Loan Debt
Learn the history behind the rising cost of college and how 43 million Americans landed with student loan debt.

Inspect That Used Car You Bought Sight Unseen

Check Whether Your Toyota or Lexus Is Part of This Massive Recall
More than 500,000 vehicles are thought to have a software error.

Filed Under: Liz's Blog Tagged With: home improvements, Smart Money podcast, student loan debt, Toyota Lexus recall, used car inspections

Thursday’s need-to-know money news

October 21, 2021 By Liz Weston

Today’s top story: How the toy shortage could affect your holiday. Also in the news: How to pay for home improvements without equity, 3 free ways to run your business more smoothly, and how to save money like a ‘super saver’.

How the Toy Shortage Could Affect Your Holidays
Popular toys could be hard to find this holiday season because of supply chain issues, so planning is key.

How to Pay for Home Improvements Without Equity
Hoping to buy a home? Strategizing how you’ll pay for home improvements now can save you stress later.

3 Free Ways to Run Your Business More Smoothly
These three ideas can help your business operate more smoothly without costing you any money.

How to Save Money Like a ‘Super Saver’
If you want to save a super amount, do what so-called “super savers” do.

Filed Under: Liz's Blog Tagged With: business tips, equity, holiday shopping, home improvements, savings tips, toy shortage

Friday’s need-to-know money news

January 24, 2020 By Liz Weston

Today’s top story: What you need to know about the new FICO score. Also in the news: 5 reasons to add beneficiaries to your investment accounts now, 5 home improvements that may not pay off when you sell, and what to do if you lose your credit or debit card while traveling.

Worried About the New FICO Score? Here’s What to Know — and Do
Get the details.

5 Reasons to Add Beneficiaries to Your Investment Accounts Now
Making things easier on your loved ones.

5 Home Improvements That May Not Pay Off When You Sell
Skip the chef’s kitchen.

What to Do If You Lose Your Credit or Debit Card While Traveling
Rule #1 – Don’t panic.

Filed Under: Liz's Blog Tagged With: credit card, Credit Score, debit card, FICO score, home improvements, investment account beneficiaries, lost card, traveling

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