When it comes to home improvements, there is a difference between capital improvements and repair and maintenance work. Capital improvements are permanent structural alterations or repairs that substantially increase the value of a property, while repair and maintenance work is taxable and does not add value. Examples of capital improvement projects include building a terrace, installing a water heater, or installing kitchen cabinets. On the other hand, repairing a broken step, replacing a thermostat on a water heater, or painting existing cabinets are examples of taxable repair and maintenance work.
The IRS defines a capital improvement as a home improvement that adds market value to a home, extends its useful life, or adapts it to new uses. Minor repairs and maintenance, such as changing door locks, repairing a leak, or fixing a broken window, do not qualify as capital improvements. There can be a fine line between capital improvement and repair; for example, replacing some shingles on the roof is considered a repair while replacing the entire roof is considered a major improvement. All capital improvements to your home are tax-deductible; however, you can't claim the deduction until you sell it, when the cost of additions and other improvements add to your property's cost base.
Capital improvement is any permanent structure or other asset added to a property that increases its value. It's important to understand the difference between capital improvements and repair and maintenance work in order to maximize your tax deductions and benefits. Knowing what counts as capital improvements can help you make informed decisions about home improvements and ensure that you get the most out of your investments.