Whether you're planning to flip a property or simply want to improve the value of your home, it's a good idea to prioritize projects that count as capital improvements. A capital improvement to your home is an expense you can claim on your taxes after you sell the property.
But what exactly does capital improvement mean? Here are some common questions and answers:
Not all home improvement projects count as capital improvements. An investment in the construction of new buildings is considered an investment of significant value and an improvement of property. This usually involves building or remodeling the structure.
In contrast, repairs are either preventative or routine maintenance. This would include work to fix or replace an existing asset.
Here are some of the most common examples of capital improvement projects:
Capital improvements generally increase the price of an asset, but also extend its useful life. Under IRS standards, capital improvements must last at least one year after completion. Although the scope of capital improvements varies between individuals, and large property owners make capital improvements.
A common way to finance a capital improvement project is to opt for cash out refinancing. Cash out refinance allows you to replace your existing mortgage loan with a larger one and take out the difference as cash.
Home equity loans and home equity lines of credit (HELOC) are also used for capital improvements. A home equity loan is ideal for a one-time major project, while a HELOC can be beneficial if you're planning multiple ongoing projects of varying expense.
While there is a difference between regular maintenance and capital improvements, one can turn into the other. For example, you might have a leak and hire a plumbing service to investigate and resolve the issue. In evaluating the problem, you find extensive damage requiring replacement of large sections of plumbing.
While repairs and maintenance were originally meant to restore your plumbing's existing function, replacing damaged pipes will extend the useful life of the system and home.
To find out if your planned projects are considered capital improvements, consult a home inspector or tax professional. The more you know about the potential benefits of your hard work and money, the better decisions you can make for your home.
Terese Ferrara is a long-time resident of the Bay Area and has been a partner with The Goss Real Estate Group for many years. She and her husband raised their two daughters in San Jose, where she successfully continues to build her real estate career.
After earning a bachelor’s degree from San Jose State University, she went on to teach in the San Jose Unified School District for 9 years. Transitioning to real estate was a logical choice, utilizing her patient demeanor to educate all levels of buyers and sellers. Knowledge and experience demonstrate her vested interest in delivering the highest level of care and professionalism to every client. She consistently strives to exceed her client’s expectations throughout the entire real estate transaction and remains a trusted advisor long after each close.
As a board member on KW Bay Area Estates’ Associate Leadership Council (ALC), she aids in support of culture and professional development strategies for over 180 associates. Terese is also a Director for the Santa Clara County Association of Realtors Foundation, which supports community service initiatives in Silicon Valley.
Terese is the consummate real estate professional dedicated to providing unparalleled service to her clients through ongoing training and education, keeping her on top of the dynamic market and latest real estate trends. Her high-touch approach coupled with honesty and integrity support her commitment to her client’s real estate needs.
