capital gains tax

[Carmel476]

I sold my house after 12 years and put the money into another primary residence.  I am single so my "allowance" for gains is $250,000.  What improvements made to the last house can be deducted?  Do I need receipts for everything?

[SwapnaM]

You cannot deduct home improvements directly from your taxes when you sell, but you can add them to your home's cost basis, which reduces your taxable gain. These are called capital improvements. For e.g., remodeling of kitchen or bathrooms, adding new rooms, new roof, HVAC, major landscaping etc. All these expenses will increase your cost basis thereby reducing the gains.

For example: If you bought your home for $500,000 and spent $50,000 on capital improvements, your adjusted basis is $550,000. If you sell for $800,000, your gain is $250,000 — which is fully excluded under the IRS rule for single filers.

Yes, ideally, you should have receipts for everything. The IRS requires taxpayers to keep adequate records to support income, deductions, and credits. This includes home improvement expenses. It'll be very difficult to prove your expenses without receipts, in case of an audit. If you don’t have receipts, you may still be able to use other records (e.g., photos, permits, or credit card statements), but receipts are the strongest evidence.

https://www.irs.gov/pub/irs-pdf/p523.pdf is the authoritative source for detailed information on this topic. 

@Carmel476 Thanks for the question!!

[BettieG]

You're absolutely correct that you are likely entitled to the $250,000 exclusion for single filers, having sold your primary residence, assuming you lived in the home for 2 of the 5 years prior to its sale and you didn't use it as a rental property or for business purposes.

With regard to improvements you made to the house over the years, the improvements are not "deducted per se.  Rather, they are added to your cost basis, which reduces your capital gain.  A capital improvement is distinguished from routine repairs, and includes substantial items, such as things that:

• add value to the home
• prolong the useful life of the home
• adapt the home to a new use

Examples include expanding the home (by adding a new structure such as a bedroom, garage, deck, patio, etc.), finishing a basement or attic, remodeling or renovating a kitchen or bathroom, putting in a new roof or new furnace, replacing windows, major landscaping installations, adding a security system, etc.

While you won't have to include receipts with your tax return, the IRS does require that such items be able to be substantiated if challenged.  You should therefore keep the receipts and other documentation of the improvements you made to the home.

You may find IRS Publication 523, Selling Your Home, to be very useful in your situation.

I hope this helps.