You cannot deduct or capitalize the cost of landscaping services for a home.
The Internal Revenue Service offers taxpayers who own homes an array of related tax deductions to minimize the amount of income tax due each year. However, you may not deduct the expenses you incur to make capital improvements to a home. The tax benefit for these expenditures is deferred to later years.
Tax Basis
When you purchase a home, all costs you incur are included in the home's tax basis. In addition to the purchase price, tax basis includes most settlement costs such as title, recording, legal and abstract fees, transfer taxes, title insurance and surveys. The basis also includes the seller's outstanding real estate tax balance for which you assume liability. The expenses you pay associated with obtaining fire insurance, credit reports, mortgage points and loan assumption fees are not included in the home's tax basis.
Capital Improvements
The original basis of the home increases by amounts you pay to make capital improvements to the home. The new tax basis is referred to as adjusted basis. To qualify as a capital improvement, it must materially add to the value of a home, adapt it to a different use or prolong its useful life. This can include adding an extension to the home, finishing a basement, installing a roof or erecting a fence on the property. You can add the cost of materials and labor to the home's tax basis. However, you cannot increase the basis by the value of labor you personally provide.
Repairs
The cost of ordinary repairs made to a home are not added to the home's tax basis if they are made to maintain the home's condition and do not add to its value. Common examples include fixing leaks and repairing broken windows. However, if you make repairs as part of an extensive remodeling or restoration project, you can add the costs to the tax basis.
Gain or Loss
The tax benefit of capitalizing home improvements is recognized when you later sell the home. You calculate the gain on a sale of a home by subtracting the adjusted basis and selling fees from the sales price. For example, if the original tax basis of the home was $1 million and you make capital improvements totaling $300,000, the adjusted basis of the home is $1.3 million. A sales price of $1.5 million results in $200,000 of taxable capital gain. However, if you did not add the $300,000 to the home's original basis, tax on a $500,000 capital gain must be paid.
Exclusion of Gain
The federal tax law allows for the exclusion of up to $250,000 of gain generated by the sale of a home. To qualify, you must own the home for at least two years and use it as a main residence for two years within the five-year period immediately preceding the sale. The exclusion is only available to taxpayers who do not exclude the gain from a home sale in the prior two years.
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