Keep your renovation receipts
From the Archive: Do One Thing
Keep Your Renovation Receipts
April 9, 2024
Congrats on finishing that big remodel in your downstairs bathroom! Make sure you keep those receipts.
Profiting on home sales is as American as apple pie, and our tax code reflects this national value by excluding much of the increase in value in your home from taxes: if you're filing single, the first $250,000 of gains are tax-free, and if you're filing jointly, the first $500,000 of gains are tax-free. (Some special circumstances apply based on how long you were in the home, if you are a recent widow, and more.)
But what if you stand to profit more than that exclusion? You can add any money spent on major upgrades to the "cost basis" of your home for tax purposes.
Here's a simplified example: say you bought your home years ago for $500,000, invested $25,000 in a bathroom remodel, and you're now selling the house for $800,000. How much did you actually profit? That would be the $800,000 (how much you sold it for) minus the original purchase price ($500,000) and the major upgrade ($25,000). So your profit would be $275,000 -- $25,000 over the exclusion amount for a single person, rather than $50,000 over the exclusion amount, had you not kept those receipts!
This article is from our archived, OG newsletter. An iconic feature of this newsletter, “Do One Thing” was a series of actionable tips.
Author: Caitlyn Driehorst
Date Published: 04/09/2024
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