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.
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