None of the expenses are deductible, but some of the expenses can be added to the basis. This will increase the basis of the property and lower the amount of the gain, if any.
IRS Publication 551 has examples of Increases and Decreases to Basis in Table 1.
Home improvements may come into play when you sell your home because they're included in your home's adjusted cost basis. The bigger your basis, the smaller your capital gain, and that means less tax.
To qualify as an increase in the adjusted basis when you sell, the home improvement must:
- Add materially to the value of your home; or
- Prolong your home's useful life significantly; or
- Adapt your home to new uses
Here are some examples of improvements:
- Remodels and room additions (including decks and porches)
- New or upgraded landscaping, irrigation, sprinkler system
- Hardscape such as pavement, block or retaining wall, patio
- Fencing
- Swimming pool, spa
- Storm windows, doors
- New roof
- Central vacuum or security system
- Upgraded wiring, plumbing, ductwork
- Central heating, AC, humidifier
- New furnace, water heater
- Filtration, soft-water, or septic system
- Built-in appliances
- New flooring or wall-to-wall carpeting
- Upgraded insulation
- Satellite dish
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