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: 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. How a Capital Improvement Works
Capital improvements typically increase the market value of a property but may also expand the usefulness of the asset beyond its current state. According to the Internal Revenue Service ( IRS ), to qualify as a capital improvement, it must endure for more than one year upon its completion and be durable or permanent in nature. Although the scale of a capital improvement can vary, both individual homeowners and large-scale property owners make capital improvements. IRS Publication 523 outlines the official definition of a capital improvement. Examples of residential capital improvements include adding or renovating a bedroom, bathroom, or a deck.