Q: How can you say, as you did in a recent newspaper article, that putting in a new washer and dryer is an expense that would increase your basis in a condo? Aren’t appliances simply replacements rather than upgrades?
A: You raise an interesting question. Under certain situations a washer and dryer may be more like a toaster oven, while in other situations, it might be more like a stove. But let’s take a step back.
When you sell a property and show a profit, the IRS will want to tax that profit. If the home is your primary residence and you have lived in it for two out of the last five years, the IRS allows married couples to exclude from tax up to $500,000 in profit. If you are single, the IRS allows you to exclude up to $250,000.
Now, if your profit is above those levels, or if the property is not your primary residence (maybe it’s a vacation home) and you have a profit, you’ll want to calculate all the costs of purchase, sale and, according to IRS Publication 523, all improvements that “add to the value of your home, prolong its useful life, or adapt it to new uses.”
Also, according to this document, if you have improvements that add value to your home, you can add those improvements to the “basis” of the home. (Basis is the term the IRS uses; to most homeowners, it would be equivalent to the cost of the home.)
So back to your question. That washer and dryer may or may not qualify. In some situations, we have had accountants tell us that it would increase the basis. If you install an addition to a home with a new laundry room, all of those expenses may go toward the basis. Publication 523 also states that built-in appliances can increase the basis to the home.
If you are simply replacing the washing machine or dryer during the time you live there, that installation may not count toward your basis. That replacement won’t increase the value of the home and may not last but a couple of years. The IRS would probably not view that as counting toward the basis of the home.
For more information on the basis of a home, you can look at Publication 523 from the IRS. Simply search Publication 523 in the IRS search bar, and you can either view or download it. Thank you for your question.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.