Capital improvements on a residential home that are tax-deductible or can increase the cost basis of your home (which can help reduce capital gains taxes when you sell) are generally significant upgrades that add value, prolong the home’s useful life, or adapt it to new uses. While the improvements themselves are not typically tax-deductible in the year they are made, they may reduce your tax liability when you sell the home by increasing the cost basis.

Examples of Capital Improvements:

1. Room Additions: Adding a bedroom, bathroom, or any other living space is considered a capital improvement because it increases the size and value of the home.

2. New Roof: Replacing an entire roof is a significant improvement that extends the life of the property.

3. Kitchen Remodel: Upgrading kitchen cabinets, countertops, appliances, and plumbing is seen as a capital improvement since it enhances the home’s functionality and value.

4. Bathroom Remodel: Installing new fixtures, tiles, or plumbing in a bathroom can be counted as a capital improvement.

5. HVAC System Replacement: Installing a new air conditioning system, furnace, or central heating system is considered a capital improvement.

6. New Windows and Doors: Replacing old windows and doors with energy-efficient options is a valuable improvement that can reduce energy costs and increase the home’s value.

7. Exterior Improvements: Installing new siding, adding a porch, deck, or patio, and landscaping with permanent improvements (like walkways or retaining walls) count as capital improvements.

8. Insulation: Adding insulation to walls, attics, or floors to improve energy efficiency is considered a capital improvement.

9. New Flooring: Installing hardwood, tile, or other permanent flooring upgrades can be a capital improvement, especially if it enhances the home’s value or usability.

10. Upgrading Electrical or Plumbing Systems: Replacing outdated electrical wiring, installing new plumbing, or upgrading a water heater are seen as significant improvements that increase the home’s longevity and safety.

11. Home Additions or Structural Changes: Any significant structural change, like expanding a garage or building a new deck, is considered a capital improvement.

12. Septic or Sewer System: Installing or upgrading a septic tank, sewer system, or drainage system can be included as a capital improvement.

13. Swimming Pool Installation: Adding a pool or other recreational facilities like a tennis court or spa is considered a capital improvement.

14. Solar Panels: Installing solar panels not only adds value to the home but can also qualify for tax credits, as well as count as a capital improvement.

When These Can Reduce Taxes:

• Cost Basis Adjustment: When you sell your home, you calculate your capital gain by subtracting your adjusted cost basis from the sale price. The cost basis includes the price you paid for the home plus the cost of any capital improvements. This can help reduce the taxable gain on the sale.

• Home Office Deductions: If you use part of your home for a home office, you may be able to deduct part of the cost of capital improvements that affect the office area (for example, a new roof or HVAC system).

Improvements That Are Not Capital Improvements:

• Repairs: Routine maintenance or minor repairs (like fixing a broken window, repainting, or patching a roof) are not considered capital improvements because they do not significantly add value or extend the life of the home.

Always keep records of any improvements made to your home so that you can use them to adjust the cost basis when you sell. It’s also a good idea to consult with a tax professional to understand how these deductions apply to your specific situation.