Learn the difference between a home improvement and a home repair. An improvement is something like adding a new deck, installing a security system or building a new wing. A repair is re-painting a room, fixing a broken window or repairing a hanging gutter. If you're not sure whether what you're doing is a repair or an improvement, then consult your tax booklet or contact the IRS to get an official ruling.
Organize all of your receipts from activities that count as house improvements. This includes buying materials, paying for labor and any loans that you took out--you can claim the interest on those loans when it comes time to sell your house. Keep them in a folder or large envelope, and put them in chronological order.
Sell your house. When you sell your house you take the original cost that you paid for it, the fees incurred when you bought it and the costs of all the improvements that you've made to the house that qualify for a tax claim. You add all of this together to determine your adjusted basis. You compare your adjusted basis to the price you received for the home. Anything past $250,000 profit is what you'll have to pay taxes on.
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