A Simple Homeowner’s Guide on Capital Improvement

As a homeowner, you might be wondering how you could increase your home’s market resale value. If that’s the case, consider doing some renovations to upgrade your home. But it has to make a significant impact on your home, such as renovating your bathroom to accommodate a bathtub or remodeling a kitchen. Only certain projects such as these can actually be counted as capital investment and therefore add to the market value of your home. But there’s actually more to it than planning remodeling projects for your home.

Capital Improvement and Its Definition

A capital improvement is any permanent asset, structural change, or renovation to a property to increase its overall value. Basically, any asset or structure that’s permanently added or restored can be defined as a capital improvement on a property. It’s a term broadly used on any property, be it a residential or a commercial one.

Capital improvement can be defined as a municipal, business, or personal sense. but they all share the following characteristics, such as fixing a defect or a flaw of the property, having a significant improvement to the property, and added with the intention to stay as a permanent improvement to the property. This means any effort to remove the structure or asset can cause impactful damage to the property.

What Counts as Capital Improvement

A capital improvement can significantly improve the market value of a property. According to the IRS, a capital improvement can increase the cost basis of a structure of a property. So, this means the expenses that you made on the improvements, such as adding a new deck or adding new built-in appliances, are added to the amount you paid when you first purchased the property.

For instance, if you own an apartment and plan on a significant apartment renovation, then you’re also adding a capital improvement on your property. If your renovation cost was $30,000, then you can expect around the same value to reflect on the property’s price when you’re selling it. So, let’s say you bought the apartment for $170,000, then after your $30,000 project alone, it would bring the market value up to $200,000.

Key Benefits

Capital improvements can also reduce the size of the taxable capital gain when you sell your property. But capital gains from real estate can behave differently from other forms of capital gains. As a homeowner, you’re still entitled to a capital gains exemption on any profit from selling your primary residence up to $250,000 if you’re single, or $500,000 if you’re married or filing jointly. But remember, you need to reside in your said property for at least two of the last five years before you sell it.

Make your dream apartment remodeling project come true with Knockout Renovation®. We’ve proudly offered top-notch remodeling services for over 26 years. Give us a call at (212) 599-5060 or reach us via our online request form. We serve clients in New York City, including Manhattan and Brooklyn, NYC.