Capital Improvement
Categories: Real Estate, Banking, Investing
Capital improvement is a real estate term (the official details are outlined in IRS Publication 523, in case you need some bedtime reading). It refers to improvements made to a structure (it doesn't necessarily have to a home) that are designed to either add value, extend the life of the structure, or adapt it to new uses.
For instance, a new roof extends the life of the home, so it counts. A roof also adds value, so it would count in that category too.
The IRS does not count smaller improvements such as paint, or plumbing repairs. The distinction is important because the more you add to your house, the more you'll pay (via capital gains tax) on the profit if/when you sell. Not much of a twist ending, we know. You saw that coming when we mentioned the IRS, didn't you?
