Which Remodeling Receipts Should You Keep For Tax Purposes?
Profit Ability Article Highlight

Certain home improvements not only make your home a more enjoyable place for you to live now, but will also increase your home's tax basis, thereby decreasing your taxable gains when you finally sell it. This factor comes into play when selling your primary residence and earning profits over the $250,000 ($500,000 for couples) tax break for capital gains on that property. In order for the improvements to qualify, they must meet the IRS definition that they "add to the value of your home, prolong its useful life, or adapt it to new uses." Based on this, we can make some specific suggestions.

First of all, improvements must be permanently attached to the building or land. For, example, a new roof, a central air-conditioning system, or upgraded plumbing will qualify. Building additions such as a new bedroom or bonus room or even a new deck can qualify as well. Regular furnishings do not count as you will take those with you when you sell the property. However, built-in bookcases and entertainment units, as well as appliances will count if they stay at the property.

Standard maintenance and repairs do not qualify as improvements. The IRS rules plainly state that basic repairs that "maintain your home in good condition but do not add to its value or prolong its life" cannot be added to the tax basis as these repairs solely keep the home in the condition in which you bought it. These repairs include interior and exterior painting, replacing broken windows, replastering holes in the wall and so forth. However, don't be so quick to ignore repairs such as replacing old windows with new, updated windows that may help your home's insulation or also projects such as repainting a kitchen that was completely remodeled. Nowadays, new vinyl windows definitely add to the value of your home as they cut heating and cooling costs and make your home more attractive.

Keep your receipts and information regarding home improvement in a separate file from your regular tax information and for three years after the tax return was filed for the year in which you sold the property.

Expenses You Can Deduct on Your Residence

Mortgage Interest: Interest payments on up to $1 million in total mortgages on primary and secondary residences combined is wholly deductible.

Home Equity Loan Interest: Interest on home-equity loans or lines of credit. Interest on up to a total of $100,000 of a loan or line of credit based on either or both your primary and secondary residences. Although this money can be used for anything (i.e. purchasing a vehicle, school tuition, paying off credit card debt) this interest is deductible because it is based on your home's equity and your home is the collateral for this debt.

Property Taxes: Taxes paid to state and local governments.

Points: Loan origination fees are deductible for the year you buy your residence. If you refinance and pay points, they are deductible over the life of the new loan. If you sell or refinance again, the points are deductible the year of the sale or refinance, however any new points on a new refinance for the same property are then spread out over the life of the new loan.