The reason is that someday, you might not reinvest in another home or you may elect to take the once in a lifetime exemption which in either case will trigger the calculation of gain. One of the single most important areas of reducing gain is to accurately record the capital gains made to a home during ownership.

Repairs on a principal residence are considered maintenance and are not treatable as expenses or capital improvements. These items would be routine maintenance on the property.

Capital improvements can be added to the basis or cost of the property, thereby reducing gain. There are three simple questions that can be asked to identify a capital improvement:

1) Does it materially add to the value of the residence? Examples might be the addition of a fireplace, new fixtures, a pool, or a spa. 2) Does it prolong the useful life of the residence? This applies to improvements that if not done would shorten the property's economic life, such as a new roof, exterior paint, or a new furnace. 3) Does it adapt a portion of the home to a new use? Converting a garage to a family room or finishing a basement or an attic would apply to this rule.

Capital improvements needn't be large-dollar items. Money spent on landscaping, deadbolts, ceiling fans, mini-blinds, and similar items are all improvements that apply.