03 Dec Help with capital gains for a home sale

Q. Can money spent to upgrade a home for sale be deducted from the capital gains from the sale?
— Seller

A. If you’re upgrading your home, yes, any funds spent will reduce the capital gain generated from the sale.

Such expenditures are added to the cost of the home, therefore reducing any potential gain, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Eatontown.

“Capital improvements that qualify for this treatment are expenditures that add to the value of the home, prolong its useful life, or adapt it to new uses,” he said. “This would encompass such items as additions to a home, installing central air conditioning, a new roof, and more.”

Note that repairs and maintenance, such as applying a fresh coat of paint, do not constitute capital improvements and are not added to the cost, Becourtney said.

However, if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of the home, the entire job would be considered a capital improvement eligible to reduce capital gain, he said.

You can get additional information on this can be found in IRS Publication 523, Selling Your Home.

Becourtney said in some cases, however, your question may not be relevant if you qualify for the principal residence gain exclusion.

“When a taxpayer both owned and used the home as their principal residence for at least two out of the preceding five years leading up to the sale date, they qualify for an exclusion of gain of up to $250,000, and taxpayers that are joint filers, may exclude the first $500,000 of gain,” Becourtney said. “This exclusion applies for both federal and New Jersey purposes.”

Good luck on the sale!

Email your questions to .