Question:   Can you deduct the cost of home improvements?

Answer:   What you spend on permanent home improvements, such as new windows, can be added into your home's cost basis, or amount of money invested in a home, which reduces capital gains when it comes time to sell. Capital gains are determined by the difference in price from the time a home is purchased and the time it is sold, minus the cost of any permanent improvements.

However, the 1997 tax changes virtually eliminates the capital gains tax for most homeowners (the exemption is $250,000 for single homeowners and $500,000 for married homeowners.).

Still, it is worthwhile to save all receipts for permanent home improvements just in case. They also can be useful documentation when it comes to marketing your home when you sell.

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