A capital improvement is a permanent structural alteration or repair of a property that substantially improves it and, therefore, increases its total value. This may involve updating the property to adapt it to new needs or extending its useful life. However, basic maintenance and repair are not considered capital improvements. Repairs or maintenance cannot be included in the cost base of a property.
However, repairs that are part of a larger project, such as replacing all the windows in a house, do qualify as capital improvements. Renovations that are necessary to maintain a home in good condition are not included if they do not add value to the asset. Examples of such unqualified repairs, according to the IRS, include painting walls, repairing leaks, or replacing broken hardware. All capital improvements to your home are tax-deductible.
You can't apply for the deduction until you sell it, when the cost of additions and other improvements is added to your property's cost base. The IRS defines a capital improvement as a home improvement that adds market value to a home, extends its useful life, or adapts it to new uses. Minor repair and maintenance jobs, such as changing door locks, repairing a leak, or fixing a broken window, do not qualify as capital improvements. According to Brett Wasserman, a partner at the law offices of Marc Bronstein in Santa Monica, California, which is responsible for tax and real estate legislation, the cost of home repairs cannot be deducted in a personal residence unless the repaired part is used as a home office.
Repairing a broken step, replacing a water heater thermostat, or painting existing cabinets are examples of taxable repair and maintenance work. So, instead of focusing on improvements for tax reasons, consider what solutions a home needs to sell quickly, such as a new roof to repair damage caused by hailstorms. A repair, on the other hand, is general maintenance, for example, the repair of a faucet, the repainting of surfaces, the repair of the air conditioner or the maintenance of electrical appliances.
