John M. Hoffman & Associates CPAs

Frequently Asked Tax Questions

Home Ownership 

"What about the improvements I make to my house - are they tax deductible?"

If this is your principal residence, the improvements that you make are not currently tax deductible. You should, however, keep a permanent file on all of those home improvements. Why you may ask? Let's say you bought a home 20 years ago for $400,000 and you are now going to sell it for $1,000,000, for what sounds like a gain of $600,000. As mentioned earlier, a married couple can exclude from gain up to $500,000 of capital gain on the sale of their principal residence provided they meet certain criteria. In this example of a $600,000 gain, lets assume the taxpayers can exclude $500,000 of the gain from tax. What if the taxpayers made improvements to the home during those 20 years? If they are capital improvements, they can be added to the $400,000 basis, effectively reducing the gain, perhaps below the $500,000 maximum excludable amount, making the sale entirely tax free.

If you have a home office or rent a portion of your home, you will be able to depreciate the part of the improvements allocable to the home office or rental portion.