Will fees I pay for pre-sale home painting reduce my capital gains tax obligation?
Home painting is a classic example of a repair, which, with a few exception, cannot be used to reduce your tax obligations.
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My wife and I own a large, old home with equity over $600,00 (we hope). This is more than the $500,000 home sale tax exclusion for married couples, so we know we can face capital gains taxes on part of our profit when we sell the home.
Our real estate agent tells us we should have both the inside and outside of the house repainted. This will cost $25,000. If we pay for this, will it reduce the amount of capital gains tax we’ll have to pay on our profit when we sell the home?
Repainting your house inside or outside is a classic example of a home repair. Ordinarily, these and other home repairs — for example, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes -- provide no tax benefits to the homeowners who pay for them.
You can’t deduct home repairs from the sales proceeds you receive nor can you add them to your home tax basis (cost for tax purposes). This is so even though you repaint or do other repairs to make your home more attractive to prospective buyers. Of course, this doesn’t mean you shouldn’t go ahead and paint your home anyway. It’s usually easier to sell a freshly painted home.
However, there is an exception to the general rule that home repairs provide no tax benefits. If repairs are made as part of an overall home improvement project, they can be included in the cost of the improvement. Unlike repairs, home improvement costs can be added to your home’s tax basis. This will reduce any taxable profit you receive when you sell the home.
A home improvement is something that adds to your home’s value, prolongs its useful life, or adapts it to new uses. Examples include extensive home remodeling or restoration projects — for example, remodeling a kitchen, replacing walls and floors, or adding a new bathroom. If you repaint part of your home as part of such a remodeling project, you can include the cost in the overall cost of the project and add the total to your home’s basis.
For example, if you remodel the kitchen by adding new appliances, cabinets, counters, and flooring -- and also have it repainted — you could include the painting cost as part of the kitchen remodel and add the amount to your home’s basis. Be sure to keep good records showing that the painting was done at the same time as, and as part of, the overall home remodel or improvement project.