Define Capital Improvements

Homeowners that are looking to increase their home’s value can consider making capital improvements to their home. Only certain jobs can be categorized as a capital improvement, such as installing solar panels replacing windows. Although these jobs are generally completed just in front of a homeowner wants to sell the home, they may be produced at any time with no intent to market.


A capital improvement includes any major enhancement that is made to your home. The Cooperator explains that so as to qualify as a capital improvement, the enhancement should either”add value to a property or substantially prolong its lifetime.” A few examples of a funding improvement include obtaining a new roof, installing a generator, including a porch or updating an electrical system. Minor interior layout changes, such as a fresh coat of paint, aren’t considered capital improvements.


The Homeowners Association indicates that homeowners decide to make capital improvements shortly before putting their property on the market. This not only raises the market value of the home, but also creates the chance for the homeowner to get a tax deduction. In fact, homeowners may find a worksheet from the IRS to monitor their capital improvement expenditures, which may subsequently be reported on Form 2119. Besides an increased home value and tax breaks, homeowners may also benefit from the enhanced living conditions made by these home enhancements.


There are two chief types of funding improvements: interior and exterior. The interior enhancements may include a remodeled kitchen, a new boiler or installing central air conditioning. Exterior improvements may consist of everything from adding on a garage to installing a swimming pool.


Homeowners should take caution when planning capital improvements. The American Homeowners Association warns that upkeep, repairs, wallpapering and painting don’t qualify as capital improvements. Homeowners should consult the IRS capital advances worksheet or speak with a tax preparation specialist if they are not sure about whether or not a job will qualify.

Expert Insight

The AHA advises homeowners to maintain all receipts linked to their own capital improvement projects. These ought to be saved not only to help with the tax planning process, but also in case the IRS should ever inquire concerning the homeowner’s improvement expenses. Homeowners should also consider whether to rely their jobs as a capital improvement or an expense. The Cooperator explains that an expense counts for only one year, even though a capital improvement for a depreciating asset, such as a roof, can count for several decades.

See related