Title: Capital Improvement Definition
Headings: Capital Improvement
Capital Improvement
What Is a Capital Improvement?
Key Takeaways
How a Capital Improvement Works
Special Considerations
Cost Basis
Capital Gains
Local Exemptions
Examples of Capital Improvements

Content: Capital Improvement Definition
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Capital Improvement
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​Somer G. Anderson is an Accounting and Finance Professor with a passion for increasing the financial literacy of American consumers. She has been working in the Accounting and Finance industries for over 20 years. Article Reviewed on December 18, 2020
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Somer Anderson
Updated Dec 18, 2020
What Is a Capital Improvement? A capital improvement is the addition of a permanent structural change or the restoration of some aspect of a property that will either enhance the property's overall value, prolongs its useful life, or adapt it to new uses. Individuals, businesses, and cities can make capital improvements to the property they own. Often capital improvements are given favorable tax treatment and may be exempted from sales tax in certain jurisdictions. In a business or corporate finance, this process is similar to investments in capital expenditures (CAPEX). Key Takeaways
A capital improvement is a durable upgrade, adaptation, or enhancement of a property that increases its value, often involving a structural change or restoration. The IRS grants special tax treatment to qualified capital improvements, distinguishing them from ordinary repairs. In addition to enhancing a home, capital improvements can increase the cost basis of a property, which in turn reduces the tax burden when it is sold.