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: A primary concern is it must be in place at the time a property is sold. A capital improvement must also become part of the property—or be affixed so permanently to the property—that the removal of it would cause significant damage or decrease in the value of the property itself. Repairs or maintenance cannot be included in a property's cost basis. However, repairs that are part of a larger project, such as replacing all of a home's windows, do qualify as capital improvements. Renovations that are necessary to keep a home in good condition are not included if they do not add value to the asset. Examples of such non-qualifying repairs, according to the IRS, include painting walls, fixing leaks, or replacing broken hardware. Capital Gains
In addition to improving the home, a capital improvement—per the IRS—increases the cost basis of a structure. That is, expenses incurred upon making the improvements are added to the amount the owner paid to buy or build the property. Augmenting the cost basis, in turn, reduces the size of the taxable capital gain when selling the property. Capital gains from real estate behave differently than do other types of capital gains.