Maximize Your Tax Savings: The Importance of Keeping Home Improvement Records Before Selling Your Home
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Many taxpayers don’t feel the need to keep home improvement records, thinking the potential gain when they sell their home will never exceed the amount of the tax code’s exclusion for home gains explained as follows.
Under the current version of the tax code, you are allowed to exclude from your income up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you owned and lived in it for at least 2 years (24 months) of the 5 years before the sale. You also cannot have previously taken a home-sale exclusion within the 2 years immediately preceding the sale. There is no limit on the number of times you can use the exclusion if you meet these time requirements; however, extenuating circumstances can reduce the amount of the exclusion. The home-sale gain exclusion only applies to your main home, not to a second home or a rental property.
As noted above, you must have used and owned the home for 2 out of the 5 years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences, and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for 2 out of the 5 years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000.
If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis or other unforeseen events. Another rule extends the 5-year period to account for the deployment of military members and certain other government employees. Please call this office if you have not met the 2 out of 5 rule to see if you qualify for a reduced exclusion.
But what if your home sale gain is more than the home sale exclusion? Then it is in your best interests to have kept home improvement records, since the costs of improvements can be added to your purchase price of the home to be used in determining the gain. So keeping the receipts for the improvements, even if only in a folder or a shoe box, may be useful in the future when you sell your home.
Here are some situations when having home improvement records could save taxes:
The home is owned for a long period of time, and the combination of appreciation in value due to inflation and improvements exceeds the exclusion amount.
The home is converted to a rental property, and the cost and improvements of the home are needed to establish the depreciable basis of the property.
The home is converted to a second residence, and the exclusion might not apply to the sale.
You suffer a casualty loss and retain the home after making repairs.
The home is sold before meeting the 2-year use and ownership requirements.
The home only qualifies for a reduced exclusion because the home is sold before meeting the 2-year use and ownership requirements.
One spouse retains the home after a divorce and is only entitled to a $250,000 exclusion instead of the $500,000 exclusion available to married couples.
There are future tax law changes that could affect the exclusion amounts.
Everyone hates to keep records but consider the consequences if you have a gain and a portion of it cannot be excluded. You will be hit with capital gains (CG), and there is a good chance the CG tax rate will be higher than normal simply because the gain pushed you into a higher CG tax bracket. Before deciding not to keep records, carefully consider the potential of having a gain more than the exclusion amount.
Home improvements include just about anything that will increase the value of the home, from big ticket items like remodeling a kitchen, adding another room or a swimming pool, and landscaping to smaller items like ceiling fans. But there are some home improvements that cannot be included in the cost of home improvements, or may be only partly included. Examples are items which qualify for tax credits such as home solar, home energy efficient improvements or those that qualify for a tax deduction such as handicap improvements. In addition, the costs of general maintenance or repairs, such as fixing leaks, painting (interior or exterior), and replacing broken hardware do not count as improvements.
If you have questions related to the home gain exclusion or questions about how keeping home improvement records might directly affect you, please give this office a call.
Inflation isn’t gone—it’s just quieter. Around 3% feels tame compared to the chaos of the past few years, but that doesn’t mean it’s harmless. For most business owners, small shifts in pricing, payroll, and supply costs have become the new normal—slow, steady pressure that eats into margins one percentage point at a time. But here’s the thing: inflation doesn’t just erode profit. It also creates permission. Permission to reprice. Permission to renegotiate. Permission to rethink how your business makes money. And as we head into year-end—when every business is reviewing budgets, forecasts, and compensation plans—now’s the perfect time to turn inflation from a problem into a strategic opportunity. The Inflation Mindset Shift: From Defense to Offense Most owners treat inflation like a storm to wait out. They hunker down, cut costs, and hope the economy stabilizes. But smart firms? They play offense. Inflation gives you the perfect narrative to reset pricing, refine operations, and re-anchor value with your clients or customers. Think about it: when everything costs more—from raw materials to insurance—people expect prices to adjust. That makes this moment the cleanest window you’ll get to implement changes that were overdue anyway. Step 1: Reprice With Confidence, Not Apology The biggest mistake small businesses make is treating price increases like confessions. “Sorry, but our costs went up.” Instead, reframe it as value alignment: “We’ve upgraded our processes, improved delivery, and invested in technology to serve you better.” Even if your costs are rising, your value probably has too. If your last price review was more than 18 months ago, you’re already behind. Inflation gives you cover to fix that. Step 2: Audit Margins and Cash Flow Before You Budget Before you finalize 2026 budgets, run a true margin audit. Which services or products are still profitable at today’s costs?
Which are borderline or underwater?
Which clients consistently underpay for the value delivered? Then connect that data to your cash flow forecast. A business that plans around real margins—versus assumptions—has control. If you haven’t reviewed vendor contracts lately, this is also your chance to lock in rates before potential tariff shifts or supply cost changes next year. Step 3: Forecast Smarter, Not Just Harder Forecasting isn’t about predicting inflation—it’s about being ready for it. Smart firms use 3-scenario forecasting: Best case: Inflation drops further, demand grows.
Base case: 3% inflation continues, steady but modest growth.
Stretch case: Tariffs increase, costs rise, and cash flow tightens. By modeling each, you build agility—not anxiety—into your business plan. Step 4: Align Compensation and Value Creation Inflation doesn’t just affect costs—it affects expectations. Employees feel it too. As you plan 2026 compensation, think about rewarding value creation instead of just cost-of-living bumps. For example: Introduce profit-sharing to align team success with performance.
Offer flexible benefits like health stipends or hybrid schedules—high perceived value, lower cost.
Communicate transparently about financial goals. Most teams handle reality better than silence. Step 5: Protect Profitability Before It’s a Problem When inflation was at 8%, you could blame it for shrinking profits. At 3%, it’s just math. That means you can’t afford to ignore the incremental hits—subscription creep, silent vendor increases, underpriced legacy clients. The businesses that thrive in 2026 will be the ones that use this “quiet inflation” window to: Trim inefficiencies before they compound.
Rebuild reserves.
Reinvest in tools that save time or improve margins (think automation, AI, or better client systems). The Big Idea: Inflation as a Reset Button You can’t control the economy—but you can control how your business responds to it. Inflation isn’t a crisis anymore. It’s your chance to reset the rules—on pricing, partnerships, and profitability. When you treat inflation as an opportunity, not a threat, you stop playing defense and start leading from strength. Ready to Plan Your 2026 Strategy? Now’s the time to review pricing, forecasting, and compensation plans before the new year begins. If you want to make 2026 your margin expansion year—not another squeeze—contact our firm. We’ll help you analyze your numbers, refine your strategy, and move into the new year with confidence and control.
Growth Feels Great—Until It Doesn’t At first, running your business feels simple: money comes in, bills go out, and if there’s something left over, you’re doing fine. Then growth happens.
More clients. Bigger projects. Higher payroll. Maybe even a second location. Suddenly, cash doesn’t flow the way it used to. You’re booking record sales, but your bank balance looks… thin. You’re working harder than ever, yet the pressure to make next week’s payments feels heavier. Welcome to the paradox of growth: the bigger your business gets, the tighter cash flow can feel. Why Growing Businesses Feel Cash-Poor It’s not bad management—it’s math. As revenue grows, so do: Accounts receivable: Clients take longer to pay larger invoices.
Inventory or project costs: You spend cash weeks (or months) before you earn it back.
Payroll: Growth usually means more people—and payroll hits like clockwork, even when customer payments don’t.
Taxes: Higher profits mean higher estimated payments that pull cash out of your account quarterly.
Growth stretches the timing gap between money going out and money coming in. Without a system to monitor and forecast it, you’re flying blind. The Shift: From Bookkeeping to Cash Flow Strategy Most small businesses start with simple bookkeeping: track what you earned, record what you spent, file the taxes. But once you grow, you need something more— cash flow management that looks ahead, not just backward. That’s where financial professionals make all the difference.
They can help you: Forecast inflows and outflows weeks or months in advance.
Spot cash gaps early—and plan around them.
Build reserves for seasonality or growth spurts.
Model “what-if” scenarios (new hires, equipment purchases, expansions) before you commit. In other words, they help you turn growth from a guessing game into a system. Real-World Example: The Busy-but-Broke Dilemma One of our clients doubled revenue in a year—then almost ran out of cash. Why? Every big new contract required more up-front costs and staff before payments arrived. Once we mapped cash flow month by month, they saw the problem clearly. With a few tweaks—changing invoice terms, adjusting payroll timing, and setting up a short-term credit line—they moved from panic to predictability. The revenue didn’t change. The system did. Bottom Line Growth brings opportunity—but it also brings complexity. What used to fit on a spreadsheet now needs structure, foresight, and strategy. If your business is growing fast but cash feels tight, it’s time to move beyond basic bookkeeping.
Contact our firm today to build a cash flow plan that grows as smart as you do.
Are you ready to make the move? Are you looking for someone to help you grow your business? A CPA firm who cares about not only your business but you as a person? A firm which can bring insight into your business? One that looks out for your best interests while keeping you compliant with all the IRS, state and other financial regulations? If so, we are looking for you! Steven Brewer & Company, CPAs, is brick and mortar office with a strong virtual presence. We are looking for the right clients to join us. Currently we work with over 35 companies in 20 states. We know how to work virtually with our clients. We work to help you understand your business; help you plan for the future and use your business assets in planning for the best results in building your future. If you are looking for all of this, give us call (812-883-6938) or drop us an email (admin@stevenbrewercpa.com) to schedule a meeting to discuss your financial needs. In the meantime, check out our website, stevenbrewercpa.com, to find out more about us.