Home prices across California have been on the rise. If you have owned for many years in the Los Angeles, San Diego or San Francisco metro, you could owe tax on a sale.
Single homeowners do not owe taxes on gains up to $250,000. This amount doubles to $500,000 for married couples. Gains above the threshold are subject to federal and possibly California state taxes. A Zillow estimate for L.A. finds that in the next 10 years almost 20 percent of married couples could exceed the tax-free threshold. You can minimize your tax bill by documenting all home improvements over the years.
The Internal Revenue Service resource on the topic is Publication 523: Selling Your Home. To claim the waiver on taxes, you generally need to have lived in the home for two of the previous five years.
What receipts do you need to save?
It can be tricky, because repairs do not count. Pub 523 does list some improvements that you can subtract from a gain. They include:
- Landscaping – switching to drought-tolerant plants
- Decks or a concrete patio that reduce the amount of grass you must water
- A new roof, siding, flooring or insulation
- Installation of utility services, such as fees paid to hard wire Apple TV
On the other hand, painting probably would not count.
You need receipts for each of your improvements. This documentation can pile up and thermal receipts fade over time. Scanning all receipts and storing them in a digital file can solve these issues.
If you have lived in the same home in California for many years, you need to consider taxes before selling. Save receipts from all improvements if your home is appreciating.
Source: New York Times, “House Value Jumping? Save You Home Improvement Receipts,” Ron Lieber, June 5, 2015