Capital Gains Adjustment

If you are preparing to sell your home, you may be able to substantially lower your capital gains tax obligation on your home sale by documenting any improvements (generally speaking, capital improvements) you made to the property. The cost of these improvements can be added to the “basis” of your home price, resulted in your home’s “adjusted basis.” You can then subtract the adjusted basis from the “amount realized” from your home sale (sale price - sale expenses) to calculate your taxable gain.

For example, if you purchased your home for $300,000, invested $200,000 in improvements, and later sold the property for $800,000, your gain calculation might look something like this:

$800,000 - [$300,000 + $200,000] = $300,000 (taxable gain)

Note: The first $250,000 of taxable gain is generally exempt from capital gains tax if the property sold was the taxpayer’s primary residence for at least two of the last five years (joint filers may exclude up to $500,000). More information here.


Potential to reduce or eliminate capital gains tax on the sale of your home, depending upon the improvements previously invested in your home.

Claimed as a reduction in reported income on your personal income tax filing.

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