Hi Friends!
Last week our friends Tim and Judy asked us about capital gains. They have a comfortable house in Bothell. Bought the house for $77,950 in 1981. And now the value’s pushing a cool million. So they asked what that means for capital gains tax when they sell.
Capital gains taxes are roughly 15-20% of your gain. But how do we calculate gain? Add together the purchase price + major home improvement expenses + (some) closing and sales costs + $250,000 capital gains exemption ($500,000 if you’re married). This is what you get to subtract from the selling price, and then you’re taxed on the balance.
Tim and Judy saved their receipts, but a lot of the work was DIY. That’s okay- we can still use the material costs when we do it ourselves. They’ve put a deck on. Completely opened and updated the kitchen. Finished the downstairs. They’re about to redo a bathroom.
Without receipts for improvements, they’d be looking at a tax bill around $50,000. Fortunately, there’s plenty to deduct and reduce that number.
With house values continuing to climb, those of us who live in one place for more than the average 7 years will either be showing proof of work done or else we’ll be paying Uncle Sam more than our share. So in this world of paper free and plastic pay, receipts are still super important. When you buy the new heat pump and the cashier asks whether you’d like your receipt, the answer is, “Yes, thank you!”
Then file that receipt into a “Taxes” folder for safe keeping and enjoy your upgrade!
Need any other real estate help? We are here for you!
Blessings,
Sandy and Sarah
P.S. Didn’t save your receipts? Talk with your CPA- dealing with the IRS is above our pay grade.
P.P.S. Some of these upgrades also give you tax benefits now. Talk with your CPA about that to save money even sooner.
