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Over the years that you own your home, you'll probably make numerous improvements to it, small and large. You may add on to the home, build a new deck or patio, replace your windows, add cabinetry, or even put up some drapery hardware. All of these "permanent" improvements can be used to increase the tax basis of your home, which means that your capital gains upon selling the home will be reduced accordingly.
Even though the current tax law exempts the first $250,000 in capital gains upon selling your home (and the first $500,000 if you are married filing jointly), it's still important to keep track of these improvements. Tax laws can change with the wink of a legislator's eye, and who's to say whether this exclusion will be reduced (or eliminated) in the future? What's more, you'll need to know your tax basis if you ever rent out the home or use part of it for a home office, and want to claim depreciation deductions; or if (heaven forbid) you suffer a fire, storm, or other type of casualty and want to claim casualty deductions.
Do not file this worksheet with your tax return -- keep it in your permanent records until you sell the home.
The file is in rich text format (RTF) that is suitable for use with most word processing programs used in the Windows environment.
For more information, see our discussion of adjustments to your home's basis.
After you finish your federal tax return, your information will accurately and automatically transfer into your state return. Just answer a few state specific questions, and you're done.
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