Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

04/02/2008
How do your own home improvements affect property value?
If you've done a lot of home improvements, but they've been done by you or friends so that there isn't a bill for the sweat equity, how do you determine the effect on the basis of the property?
Rebecca Schreiber CFP:
expert info »
You have great friends if they will contribute their time and energy to provide you a more comfortable, attractive home. What they can't do for you, however, is add their efforts to the basis of your home. Basis is determined by how much money you have put into your home, not how much effort (unfortunately!). You can, however, keep your receipts for the materials you purchased and use them to establish a higher basis. You will reap the benefits, though, when your house is appraised for a much higher value, which you can use to establish home equity or a selling price.
Michael A. Masiello:
expert info »
Need to consult a CPA for this one.
Jody Rorick, CPA:
expert info »
Any costs you have, other than the sweat, would count. For example, the cost of paint, lumber, etc. Save your receipts.
Connie K. Marmet:
expert info »
There are two issues. First, keep track of all of the out-of-pocket costs for materials so that you can deduct them from the sale price and reduce capital gains taxes when you sell.

Second, valuing improvement depends so much on the real estate market in your area and on the specific improvements. Talking with a realtor is probably the best way to estimate the value of your upgrades, but it's very subjective.

If you're doing improvements with the idea of improving resale value and you don't plan to stay in the home very long, it's good to do your homework in advance. What you think is a good idea may have little impact on sales price. Furthermore, when you sell a house there are always maintenance repairs that cost money or reduce the sale price, and you may be ahead to do them rather than remodel/upgrade.
Gail Rosen, CPA:
expert info »
Blood, sweat and tears are not deductible, only money you spent.
Gary Silverman, CFP:
expert info »
First, with a $250K gain ($500K if you're married) allowed to be taken in a home at sale with no tax effects, most people end up not needing to track cost basis that closely any more. But cost basis is only allowed for money you actually spend. If someone gifts you 10 hours of their time and does work that would otherwise cost $2000, then thank them...but you don't get it added in as part of cost basis.
Rosemary Ervin, CPA:
expert info »
Understand that sweat equity has never been taxed; no one ever paid taxes on the labor. Unfortunately, it does not add to your basis. However, you should track the supplies and purchases used during the improvements. I suggest a folder titled "use the address" and whenever you buy something that will be left behind when you move, for example, a ceiling fan, then put the receipt in the folder.
 

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