Generally, there are no immediate tax benefits derived from taxpayers improving or repairing their homes. All tax benefits from home improvements and repairs are seen only at the time the taxpayer's home is sold.

Improvements, such as substantial landscaping, central air conditioning installation, bathroom remodeling, fire alarm installation and/or burglar alarm installation, prolong the life of a taxpayer's home and/or add to its value. The costs associated with improvements raise the basis, which is the tax cost, of a home. This in turn reduces the potential taxable gains derived from the sale of the home.

Repairs or "fix-up" expenses, such as painting, floor refinishing, and furnace cleaning, do not provide a tax benefit unless they are connected with the sale of the home. These repairs only reduce the amount that must be reinvested in a new home in order to defer capital gains taxes from the sale of the old home.

If the taxpayer already has deferred capital gains from previous home sales, good records of improvements made to each home are essential, because the basis of the current home is reduced by the amount of gain deferred on the sale of the previous homes. In addition, the IRS may want to see supporting documentation to ensure that a current taxable gain is accurately reported.

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