It depends. The IRS defines improvements as expenses that add to the value of the property, prolong its useful life, or adapt it to new uses. There’s obviously some gray area here. But examples will help clear it up a bit.
The IRS says the following can be included as basis-increasing improvements:
- Additions: If you add an extra bedroom or bathroom, put a deck on the back of the home, add a garage, or construct a porch or patio, you've added value to the home.
- Lawn and grounds improvements: Value-adding landscaping projects, driveway or walkway construction, building a fence or retaining wall, and adding a swimming pool can qualify as property improvements.
- Exterior improvements: New windows, a new roof, and new siding are examples.
- Insulation: This includes insulation in the attic, inside walls, under floors, or around pipes and ductwork.
- Systems: Installing a new heating or air conditioning system, new ductwork, adding a central vacuuming system, wiring improvements, installing a security system, and putting in lawn irrigation are improvements.
- Plumbing: Installing a septic system, water heater, or soft water system adds value.
- Interior improvements: New appliances certainly increase the value and extend the useful life of the property, as do kitchen renovations, new flooring/carpeting, and the installation of a fireplace.
This isn’t an exhaustive list.
The painting and various repairs (if they do not fall into one of the above categories) are not defined as improvements but can be deducted as expenses.
IRS PUBLICATION 527
IRS Tangible Property
