March 2026 CT

SELLING YOUR HOME: Capital Assessments and Basis By Michael Mezzo, CPA, WilkinGuttenplan

Fahmi Ruddin Hidayat/iStock/Getty Images Plus

C apital projects play an important role in preserving the value of a home, particularly in community associations where large-scale improvements are common. While these projects often require increased contributions from unit owners, they may also provide meaningful tax benefits when a home is sold. In the prior month’s issue, the article “Maintaining the Value of Your Home” explored the importance of maintain ing both the structural components of a home and shared community amenities. Building on that discussion, this arti cle focuses on how capital projects and assessments can affect a homeowner’s tax position at the time of sale. Understanding Tax Basis To understand the tax benefits associated with capital assessments and capital projects, it is important to begin with the concept of tax basis. Tax basis represents the total investment made in a home and typically includes: • The original purchase price of the home • Certain closing costs paid at the time of purchase • Costs of capital improvements made during ownership

Basis is important because it directly affects tax liability upon the sale of a home. When a primary residence is sold, capital gain is calculated as follows: Sale price – Adjusted Basis = Capital Gain As a result, the higher the basis, the lower the capital gain. In today’s real estate market, sale prices have increased significantly. Without tracking increases to basis, many homeowners may face a higher taxable gain than expect ed. Capturing allowable additions to basis can go a long way toward reducing taxes due upon sale. Interior and Exterior Improvements Increases to basis generally fall into two categories: inte rior and exterior improvements. For condominium owners, interior improvements are typ ically easier to track because the unit owner oversees and pays for the work directly. Examples include:

• Kitchen or bathroom remodels • Adding bedrooms or bathrooms • Replacing flooring, wiring, or insulation • Installing wheelchair or stair lifts

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MARCH 2026