If you already own a home, the recent real estate boom – especially in the Bay Area – is a good thing. Isn’t it?
Well, yes – that is, until you decide to sell.
A recent article in the New York Times points out that single single homeowners with gains of over $250,000 and married couples who have gained at least $500,000 could end up paying federal tax of as much as 23.8 percent on these real estate gains over those amounts when they sell. This, in addition to possible state taxes.
Of course, this is more of a problem in expensive cities such as San Francisco where 25 percent of all homes will be affected. In San Jose, the percentage is closer to one-third.
Fortunately, there is the possibility of some relief in that you may be able to deduct the cost of home improvements from your gain when you sell. Internal Revenue Service Publication 523: Selling Your Home provides the I.R.S.-approved list of things that you can subtract from your gain before you determine whether it’s below or above the $250,000/$500,000 limit.
A few caveats: Repairs are not included. Painting and re-finishing floors count as repairs; installing a new hardwood floor does not.
Also, you must keep receipts for all the home improvements.
Finally, the laws could change or at least the $250,000 and $500,000 figures.
In the meantime – save those receipts.