Capital Improvements
Fall is the most popular time of year for upgrading our homes. However, before launching into a major kitchen overhaul, replacing the windows, or adding on a sunroom, consider carefully. If you go about the process of making home improvement wisely, you can avoid the pitfalls and do yourself some fiscal favors. But, the price of rushing in without due diligence and caution is high.
Certain types of home improvements, for example, qualify as what are called ‘capital improvements' that will actually reduce your capital gains tax bill by thousands of dollars, when you sell your home.
Plus, according to the annual Cost-Value Report in Remodeling magazine, a trade publication for remodeling professionals, some types of improvements recoup their costs more than others, too.
A Major Pitfall to Avoid
But, one of the most expensive mistakes homeowners can make is in selecting their home improvement contractor, according to Smart Consumer Services, a consumer education and assistance organization, that offers low cost contractor screening services to homeowners.
"The value of even the highest quality window is reduced to zero if it's been poorly installed, " says N'ann Harp, president of Smart Consumer Services. Harp advises homeowners to take nothing for granted when hiring a remodeler.
"Hiring the right contractor makes all the difference. Homeowners who don't do a thorough background check on a prospective contractor are their own worst enemy," she says. For about $60 Smart Consumer Services does a complete company screening that includes business credit history, license and insurance confirmation, Better Business Bureau reports, and past customer references.
"A busy company isn't necessarily a guarantee that you'll get good service, either," Harp says. You might end up with the least experienced subcontractor they hired yesterday.
One tip Harp offers is to ask in advance for the name of one of the firm's most experienced employees and to be willing to wait for that person, specifically, to do your installation.
Not over-spending on an improvement is another valuable tip. Keep your upgrades consistent with local neighborhood home values, Harp advises.
Selecting Capital Improvement Projects
Here are some of the best projects that can qualify as capital improvements:
- new roof
- heating and cooling system
- insulation
- new garage
- room addition
- deck
- porch
- built-in appliances
- fencing
- landscaping
- swimming pool
All Receipts are Valuable
Be sure to save all receipts or cancelled checks for home improvement work done. Tax experts even recommend keeping receipts for work that may not currently qualify as a capital improvement, because by the time you do sell your house the list of qualifying improvements may have expanded to include the work you have had done.
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