Two Reasons to Keep Your Home Improvement Receipts

ABILITY TO REDUCE YOUR CAPITAL GAINS TAX.

Capital Gain is calculated by taking your sales price, minus your costs of selling the house, minus your "tax basis". Your tax basis is the total cost of buying, building, or improving your house. When you make a "substantial improvement", the cost of the home improvement is added to your tax basis. This reduces your capital gain when you sell the house, and it could save you quite a bit of money on capital gains taxes.

ABILITY TO DEDUCT YOUR MORTGAGE INTEREST IF YOU ITEMIZE DEDUCTIONS.

Mortgage interest is only tax-deductible if the funds were used to buy, build, or improve your home. If you take out a mortgage for home improvement purposes, the IRS may ask you to prove the project was a "substantial improvement" that:

• Adds to the value of the home,
• Prolongs the home’s useful life, or
• Adapts the home to new uses. For example, painting a room may not qualify, but an addition or a new kitchen may qualify.

Keeping the receipts from your home improvement project would go a long way toward proving this.