[bloomer]

I think he is talking about the actual building on the property. It doesn't make sense that an 20 year old house should be worth more than an "equivalent" newly constructed house. It should depreciate through wear and year like any other capital asset. That it appreciates (in real dollars, inflation adjusted) instead is confusing.

[zemo]

you're ignoring everything other than the intrinsic worth of the house itself as an object.

E.g., if you had a house in North Dakota in 2005 and then they discovered the Bakken formation in 2006 and the shale oil boom started, the value of your home would appreciate because of the rapid influx of oil industry labor. The price of something isn't determined by its intrinsic value alone; it's what people will pay for it. If people will pay more for it tomorrow than they will today, it's an appreciating asset.

If the population is growing faster than the housing stock for that area, the demand for housing goes up.

[usaar333]

I'm not even sure how they calculate capital gain. If I do maintenance on my house, are the authors viewing that as raising the basis?

[zemo]

it's the change in price at time of sale. The price of the asset is only known at the time of sale. At all other times, the assumed price is speculative. The capital gain is just the difference between the price you sell it at and the price you bought it at. That's all it is.

[dwaltrip]

I would imagine that money spent modifying the asset comes into the calculation somehow. Is that not the case? No adjustments to capital gains tax for renovation costs, etc.?

Edit: I did a quick Google. It looks like qualifying home improvements can be added to the cost basis. However, maintenance expenses cannot.

[zemo]

you're making this way too complicated in your head. Capital gains aren't paid on an ongoing basis. Gains are only realized at the time of sale. It's literally just the difference between price at which you sell an asset and the price at which you purchased the asset.

Property taxes are paid on an ongoing basis. Property tax rates are a function of the value of the property. Tax for a property is periodically recalculated by recalculating the fair market value for the property. The fair market value is speculative; it's an essentially a statement of expectation about the market. There's no obligation that a sale be for that price. But again, that's property tax, not capital gains.

If you buy a house at fair market value in a market with absolutely no change in housing values, and the house has a crummy kitchen and then you reno the kitchen, you have a reasonable expectation that you'll sell the house at a gain. So yes, improvements "come into the calculation somehow" inasmuch as they help you sell the property at a higher price. But that's not regulated or guaranteed in any way; the gains are just what you can get someone to pay you for the property. You could do lots of work on your house and then a sinkhole opens up in the street in front of your house and you no longer have a road in front of your house and the value will go down. You could make a house -worse- and still realize a gain if there are other factors that would make people willing to pay more for it.

You can't just view the intrinsic value of the house as an object to understand its price. The price is not its intrinsic value, it's what people are willing to pay for it. The gains are how much the sale price changed over time; they're not a function of the change in the intrinsic value of the object itself.

[dwaltrip]

Thanks for the response. However, it doesn't answer the question of whether one's capital gains tax bill will be affected by any investments in renovating or improving the property. If you take another look at my comment, you will see that I already answered this question.

The cost basis used in the capital gains calculation may be adjusted by qualifying home improvement expenses, but not by things like maintenance costs.

P.S. A bit of friendly advice. There is almost always a better way to phrase things than "you're making this way too complicated in your head". It can be poorly received even if you are well-situated to provide useful information or understanding to the other person. It comes off especially poorly when you didn't understand what the other person was asking.

[zemo]

A bit of friendly advice: starting out with "a bit of friendly advice" is passive-aggressive. It can be poorly received even if you are well-situated to provide useful information or understanding to the other person.

edit: https://www.irs.gov/publications/p523#en_US_2018_publink1000... I'm not a tax attorney, that's a question for a tax attorney. Calculating capital gains taxation isn't really the topic at hand.