If you’ve owned your home for a while, you’ve probably invested time and money into making it your own—maybe you remodeled the kitchen, added a deck, or upgraded your HVAC system. But did you know that keeping records of these improvements can save you thousands in taxes when it’s time to sell?

With today’s real estate market, many homeowners are finding that the Section 121 exclusion—which lets you exclude $250,000 of capital gains for single filers ($500,000 for married couples)—isn’t always enough to cover the profit from a home sale. That’s why tracking your home improvement expenses is one of the smartest moves you can make to reduce your taxable gain.

If selling your home is on your radar, it’s also time to meet with your tax advisor. We have tools to help you create a clear cash-out and estimated tax plan so you can make informed decisions about your asking price and know exactly how much cash you’ll walk away with after taxes. Contact us now to let us help!

Why Receipts Matter (And What Happens When You Lose Them)

We’ve owned our home for over 20 years, and when we bought it, tools like Google Drive weren’t around. Back then, I kept paper receipts for home improvements in folders scattered across various places in the house.

A few years ago, I decided to go through those receipts to track a remodel we had done. I found a stack of Home Depot receipts from the project, but when I looked closer, I realized the ink had completely faded. They were just blank pieces of paper. All that documentation—proof of what we spent to improve our home—was lost.

That experience taught me the hard way that paper receipts don’t last. If I’d had today’s tools, like Google Drive or Dropbox, I could have scanned those receipts, saved them digitally, and preserved them for when I needed them most.

Why Home Improvement Receipts Matter

When you sell your home, the IRS allows you to adjust your cost basis (what you originally paid for the home) by adding the cost of qualifying home improvements. This reduces your taxable capital gain and can save you thousands in taxes.

What Counts as a Home Improvement?

For tax purposes, home improvements must:

• Add value to your home.
• Extend its useful life.
• Adapt it to new uses.

Qualifying examples include:

• Remodeling a kitchen or bathroom.
• Replacing a roof, windows, or siding.
• Installing a new HVAC system, water heater, or solar panels.
• Landscaping projects, adding a pool, or building a deck.

However, general maintenance (e.g., painting or small repairs) doesn’t count.

Why the Section 121 Exclusion Might Not Be Enough

The 121 exclusion allows you to exclude $250,000 ($500,000 for married couples) of capital gains when selling a primary residence. But with today’s skyrocketing home values, many sellers find that their gains exceed these limits.

Here’s an example:

• You bought your home 20 years ago for $200,000.
• You sell it today for $900,000, with a gain of $700,000.
• Without records of improvements, your taxable gain after the $500,000 exclusion is $200,000.

But if you’ve spent $100,000 over the years on qualifying improvements and have the receipts to prove it, your taxable gain drops to $100,000—cutting your tax bill significantly.

How to Organize Your Home Improvement Receipts

With today’s tools, tracking your receipts is much easier than it used to be. Here’s how to stay organized:

1. Create a Digital Folder

Set up a cloud-based folder using Google Drive or Dropbox and name it something like “Home Improvements.”

• Inside the folder, create subfolders by year or project (e.g., “2025 Kitchen Remodel” or “2023 Landscaping”).
• Save all receipts, invoices, and even before-and-after photos here.

2. Scan Paper Receipts Immediately

If you receive paper receipts, scan them as soon as possible using apps like Adobe Scan or Google Drive’s built-in scanner.

3. Add Notes for Context

Include a description for each receipt so it’s easy to understand later. For example:

• “$2,500 – Installed new energy-efficient windows in June 2023.”
• “$12,000 – Bathroom remodel, completed December 2024.”

4. Save Photos of Improvements

Before-and-after photos can be helpful for both resale value and tax purposes. Save them alongside your receipts.

Thinking of Selling Your Home? Let’s Plan Ahead

If you’re considering selling your home, now is the time to meet with your tax advisor. Selling a home isn’t just about finding the right buyer—it’s about understanding how much of your profit you’ll actually get to keep after taxes.

As your tax advisor, I have tools to help you create a cash-out and estimated tax plan so you can:

• Understand how much tax you might owe.
• See how your selling price affects your bottom line.
• Plan for any taxable gains and avoid surprises.

Meeting early gives us time to identify strategies to reduce your tax liability. For example, we can look at ways to offset gains through tax-loss harvesting, charitable giving, or other tailored strategies.

Your Future Self Will Thank You

Even if selling your home isn’t on your mind today, life can change quickly. Whether it’s a new job, a growing family, or downsizing, you might find yourself needing to sell sooner than you expect.

By keeping your receipts organized now, you’re setting your future self up for success. Instead of scrambling to find proof of your investments, you’ll have everything ready to reduce your taxable gain and keep more of your profit.

Let’s Make Sure You’re Ready

Keeping track of home improvement receipts might seem like a small detail, but it can have a huge impact when it comes time to sell. Whether you’re planning to sell soon or just want to be prepared for the future, I’m here to help.

Your Next Step: Create a Google Drive or Dropbox folder today and start saving your receipts digitally. Then, schedule a meeting with me to discuss your home’s tax situation and create a clear plan for maximizing your profits.

Together, we’ll make sure you’re ready to navigate the process confidently and keep more of what you’ve earned. Let’s get started!