Can I count improvements twice for cost basis when I sell my home?

Q. I understand that improvements made to a home are included when figuring the cost basis when selling that home. If improvements are made more than one time during the ownership of the house, can all improvements be included in the cost basis? For example, if you replace central air and then do it again 25 years later, can you count both costs?

— Selling soon

A. Yours is a great question, but you can’t double dip.

Any costs or improvements that were completed but then subsequently replaced are not included in the cost basis of your home, said Patricia Daquila, a certified financial planner and certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.

For example, she said, if you installed the central air conditioner in 1995 and then you decided to replace it in 2020, the first central air conditioner that you installed in 1995 is not included in the cost basis of your home.

However, the good news is that if you sell your home and you owned the home for at least 24 months out of the last five years leading up to the date of sale and if you used it as your principal residence, then you could qualify to exclude the gain on the sale of your home, Daquila said.

The maximum exclusion is $250,000 for a single individual and $500,000 for a married couple who is filing jointly only if you did not sell another home during the two-year period before the sale, she said.

If you don’t meet the eligibility test, you still may qualify for a partial exclusion of the gain, she said.

“You can qualify for a partial exclusion if the main reason for your home sale was a change in your workplace location, a health issue, or an unforeseeable event,” Daquila said. “If you acquired your home in a like-kind-exchange or are subject to expatriate tax, then the exclusion would not apply.”

Check with your tax advisor so you can get an opinion specific to your circumstances.

Email your questions to [email protected].

Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.

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