What is a Capital improvement?
A capital improvement is a permanent enhancement to real or personal property that materially increases its value, substantially prolongs its useful life, or adapts it to new uses, making it deductible through depreciation or added to the property's adjusted basis rather than expensed immediately. For residential real estate, capital improvements include room additions, new roofs, finished basements, deck construction, HVAC system replacements, kitchen or bathroom renovations, and permanent landscaping features. These improvements differ from ordinary repairs and maintenance, which restore property to its original condition without adding value. Capital improvements increase your property's adjusted basis, reducing taxable gain when you sell. Sell your home planning requires documenting all capital improvements with receipts and contracts to maximize basis calculations and minimize capital gains taxes on appreciated property sales.
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