Valerie emailed: Can I write off money spent updating my house for sale/rent? If so, what line on my tax form should I fill out?
You can’t write off the cost of home improvements, but they can be used to reduce the taxes you’d pay when you sell the house (if you’ve lived in it for 24 months). If it’s your primary residence, you can exclude up to $250,000 in capital gains tax if you’re single, or $500,000 if you’re filing a joint tax return.
Here’s an example of how it works: Say you bought your house 10 years ago for $350,000 and you sell it for $700,000. During the time you lived there, you spent $50,000 on improvements – which increases your “basis” to $400,000. Subtract that amount from the sale price to determine your gain: $300,000. Only this amount is subject to tax – $250,000 of which you won’t pay tax on (if you’re a single filer).
The transaction is reported on forms 8949 and Schedule D. Here’s more information about the potential tax benefits of home improvements.