Q. Can I take tax deductions for improvements I made — new carpeting, painting, etc. — in order to sell my home?
A. The answer is yes in general. But unfortunately as with most questions about tax rules, some things such as carpeting qualify, while a fresh coat of paint, depending on the circumstance, may or may not.
You'll want to go over these things with your tax adviser and can get a better idea of what the U.S. Internal Revenue Service allows by reading its Publication 523, "Selling Your Home."
Though it's not the easiest stuff to digest, stick to it and pay special attention to the section titled "Determining Basis." That's because you'll need to understand what the IRS allows in determining the cost basis of your home, something that's subtracted from the sale price to figure out taxes.
The basis can include what you paid for the property and other expenses such as points or settlement costs, according to the IRS publication. You can also add in improvements, or items that generally have a useful life of a year or more, such as a bedroom addition or flooring and updated kitchen.
What you can't tally as an improvement is work to maintain your home in good shape such as fixing leaks or holes in walls. Those projects, along with painting, fall into the repair category, the IRS maintains.
Here's where it gets confusing and where a good tax practitioner can help you make sure you're within the rules. Repairs that are part of an extensive remodel or home restoration can be counted, according to the IRS.
Moreover, you'll need other advice if you've held the property as an investment or previously taken a tax deduction for using part of it for business.
Just remember to keep records and receipts for all of the improvements if you are adding them to the adjusted basis.
All this should help lower what the IRS considers as your gain on the sale of the property. The deductions for improvements can be valuable if the amount of profit is larger than the exemption for the sale of your primary residence.
Those total $250,000 for singles and $500,000 for married couples filing jointly if they've lived in the home at least two of the prior five years.
Do you have a question about personal finance, taxes or other money matters? Reach Akamai Money columnist Greg Wiles at 525-8088 or firstname.lastname@example.org