1) Improvements
2) Additions
3) Special assessments for local improvements, and
4) Amounts you spent after a casualty to restore damaged property.
The IRS defines improvements as those items that “add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of improvements to the basis of your property.”
Examples: Putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway are improvements.
The chart below lists some other examples of improvements
Additions | Miscellaneous | Plumbing |
Bedroom | Storm windows, doors | Septic system |
Bathroom | New roof | Water heater |
Deck | Central vacuum | Soft water system |
Garage | Wiring upgrades | Filtration system |
Porch | Satellite dish | Interior Improvements |
Patio | Security system | Built-in appliances |
Lawn & Grounds | Heating and Air Conditioning | Kitchen modernization |
Landscaping | Heating system | Flooring |
Walkway | Central air conditioning | Wall-to-wall carpeting |
Fence | Furnace | Insulation |
Retaining wall | Duct work | Attic |
Sprinkler system | Central humidifier | Walls, floor |
Swimming pool | Filtration system | Pipes, duct work |
Recordkeeping. You should keep records to prove your home’s adjusted basis. Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. But if the basis of your old home affects the basis of your new one, such as when you sold your old home before May 7, 1997, and postponed tax on any gain, you should keep those records as long as they are needed for tax purposes.
The records you should keep include:
1) Proof of the home’s purchase price and purchase expenses
2) Receipts and other records for all improvements, additions, and other items that affect the home’s adjusted basis
3) Any Form 2119 that you filed to postpone gain from the sale of a previous home before May 7, 1997
4) Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions
Document Source: IRS Publication #523
