For example, building a terrace, installing a water heater, or installing kitchen cabinets are capital improvement projects. Repairing a broken step, replacing a thermostat on a water heater, or painting existing cabinets are examples of taxable repair and maintenance work. A capital upgrade is a permanent structural alteration or repair of a property that substantially improves it, thus increasing its overall value. That can come with updating the property to adapt it to new needs or extend its useful life.
However, basic maintenance and repair are not considered capital improvements. A capital upgrade is any permanent addition or alteration that increases the value of your home or adapts it to a different use. Whether these improvements are made to your primary residence or to a rental property you own, you may be eligible for certain tax deductions and benefits. All capital improvements to your home are tax-deductible.
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. 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, says Erik Lammert, a former tax research specialist with the National Association of Tax Professionals.
For example, if you replace some shingles on the roof, it's a repair. If you replace the entire roof, it's a major improvement. If you replace broken glass, repair it. Put it in a new window, capital improvement.
Capital improvement is any permanent structure or other asset added to a property that increases its value.
