Whether it’s a fresh coat of paint, a simple room upgrade or an entire home renovation, improving your house can have multiple benefits.
Firstly it will mean you will get to enjoy the improvements for the duration of time you spend living on the property. However, there is also another huge advantage that comes into play when you sell your home.
That’s because the money you spend on improvements is subtracted from your total profit and reduces the amount you have to pay in long-term capital gains tax. Whether you remodel the kitchen, plant an attractive garden or add a garage, these improvements can all help bring down the amount you owe.
If you stand to make a significant profit when you sell your home, you could be lumped with a huge capital gains tax bill, so renovating can be an effective way to reduce the financial burden when you sell. Here’s how to do it.
IMPROVING YOUR BASIS
The figure you subtract from your sale price to work out your taxable profit is referred to as the basis. Simple home renovations and upgrades can help increase the basis price so you don’t owe as much tax.
Your aim is to change or improve aspects of the house to increase the property’s value. This could include installing an air conditioner, paving the driveway or adding a water feature. You might want to take out short-term loans to complete the work so you don’t take money away from your home loan, but make sure you always work within your financial boundaries.
However, make sure you don’t mistake improvements for general maintenance because replacing a broken tap or light fitting won’t do anything to raise the value of your property.
KEEP A RECORD OF YOUR WORK
It can be very difficult for a valuer to figure out precisely what improvements have been made to your home, so it’s important to keep an exact record of the money you spend making changes.
That way you’ll have proof of every expense and will be able to get the maximum value for your home.
But be careful not to discount something as maintenance unnecessarily. For example, a fresh coat of paint might be viewed as maintenance, but it could also make the house more presentable for buyers and therefore bring up the value.
SPEAK TO AN EXPERT
There’s no point in spending thousands of dollars adding a fourth bedroom to your home if it won’t make much of a different to your total house value. Speak to an expert property valuer and find out what improvements will make the biggest impact in your home.
In your particular circumstances, you may find that investing your time on upgrading the kitchen will increase the value of your home much more than renovating the bathroom.
Having this knowledge will mean you don’t waste your time and effort on something that won’t help reduce your tax bill.
Ultimately, renovating your home is a fantastic way to get more enjoyment out of your property, but it can also be a huge advantage when it comes to selling.
Take the time to figure out what improvements will help you most so you can work towards reducing your capital gains tax bill