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!!
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