Why do we elect politicians who pass legislation to benefit the rich? My theory is that we all think we could be rich someday (most of us won’t be!) and we want the laws set in place when we get there.
I mean, isn’t that one of the main advantages of living in the United States, the idea that a person of average means can become wealthy?
And so perhaps that’s why I picked up a copy of Real Estate Tax Secrets of the Rich, a new book by CPA Sandy Botkin. I figured I should know what the rich know about real estate and taxes.
And here’s something I learned: When it’s time to sell my house, I will be taxed on the sales price minus my "basis," (which includes the purchase price and improvements, and maybe some other stuff) and I’ll want my basis as high as possible. According to Botkin, improvements to a house are added to the basis, while repairs are not.
"The main key to whether something is a repair or an improvement," Botkin writes, "is determined by whether it is new or not. New doors would be an improvement, but repairing the door or door handle would be a repair."
The following, he writes, have been held by the courts to be improvements:
• New doors
• New iron grills on windows
• New skylights
• New windows
• New permanent partitions
• New roofs (although some courts have held this to be repairs)
• New floors
Plus, he writes, I can also include these items that are not necessarily built-in, but which transfer with the house: bookcases, sinks, lighting fixtures, refrigerators, stoves, dishwasher, fire and burglar alarms, cabinets and storage sheds, television antenna and wiring, washers and dryers, and automatic garage doors.
And finally, he said if a repair is part of an overall improvement plan that will add value to the home, and I can prove it was part of a grander plan (maybe tucked inside a home improvement contract), that repair could be added to the basis.
The key to benefiting from the tax secrets of the rich is discussing all these strategies with your tax professional for your particular situation.
And then dahling (channel Katharine Hepburn’s accent here), let’s do get together for a latte when we’re rich!