The home improvement industry invariably launches into its busiest time of year each spring. The weather is more cooperative for work outdoors, plus
many homeowners are eager to spend the annual windfall from their income tax
refund on needed repairs or major upgrades. Aside from making home life more
comfortable and enjoyable, home improvement projects can also improve your
property’s future resale value. There are a few things to consider as you build
your springtime “to-do” list.
WHERE TO BEGIN?
The list of project
possibilities around the house can seem endless, and deciding what should have
priority can be a challenge. Should you fix the leaky faucet or add on a
bathroom? Paint the peeling exterior trim or update the kitchen? Most experts
would agree that repairs and maintenance projects should come first in order to
keep your home habitable. After that, larger remodeling or replacement projects
like a kitchen update, home office, extra bathroom or bedroom, or even a swimming
pool can be considered, and preferably with an eye on future returns. Important
factors in your decision include your immediate needs and wants, how long you
plan to live in your home, and of course, what you can afford. If selling your
home in the not-too-distant future is a possibility, then the focus should
probably be on projects that can translate into a better selling price.
GET THE MOST FOR YOUR MONEY
The National Association
of Realtors and Remodeling magazine recently published the
informative “Cost vs. Value Report 2013” in which a variety of home improvement
projects are evaluated based on cost and return on investment (ROI). The chart here
illustrates the top ten projects covered by the report. Why do
these projects have such a high cost recovery? Because they tend to improve a
property’s “curb
appeal” and increase its perceived value in the eyes of a prospective buyer!
SAVE THOSE RECEIPTS
Remember that the cost of
major home improvements (versus normal repairs and maintenance) can factor in calculating the basis of your home when it's time to sell. The basis consists of the sum of the property’s
original purchase price + purchase costs + improvements + selling costs – any
depreciation taken (like the home office deduction). Subtract the basis amount
from the final selling price to determine your final gain or loss, and that is
the amount used to calculate any capital gains tax owed from the sale. You can
see why, along with your mortgage records, it’s important to keep receipts and
any other paperwork related to all major improvement projects as long as you own your home.
For more information
about the basis of assets, read IRS Publication 551.
714-924-0781
DRE #0143577
The information provided here is not guaranteed
and you should always consult with your tax professional before making any
financial decisions that could affect your tax liability.
