This tax season, we'd hoped to deduct expenses for home improvements. But our dishonest contractor took us for a ride last year and we couldnt get our receipts from him.We do have our copies of the cashiers receipts for the amount.. Can we deduct for the money paid out, but the job wasn't finished?
No, unless you qualify for energy credits (for which you need the receipts), personal home improvements are not tax deductible. However, if part of your home produces rental income (that you claim as income on your tax return) then you could depreciate a portion of the improvements.
The home improvements are added to your basis in the home. If you sell the house in the future, you can deduct the selling expenses and basis (which is basically your cost and improvements) from the sales price to arrive at the taxable capital gain. However, this probably will never be an issue for you as the IRS allows you to exclude $500,000 (if married) or $250,000 (if single) gain from the sale of your personal home as long as it is your primary home in 2 out of the last 5 years before the sale and you have not used the exclusion in the prior 2 years.
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