Home improvement projects are great ways to make a house feel like your own. They can also increase a property’s value and boost its appeal to potential buyers. But not all home improvements are created equal. Knowing which projects yield the best return on investment can help you decide where to spend your money.
According to our 2021 American Housing Survey, homeowners spent about a half-trillion dollars on home improvement projects over the past two years. The vast majority of these were paid for with cash — 78%, on average. Some people were able to afford these renovations without having to sell anything or tap into their savings, while others had to make sacrifices and go into debt.
The good news is that most home improvement projects don’t have to be costly, especially if they focus on improving functionality and are not based on fads that will quickly lose their appeal. According to our research, home improvement projects with the best ROI include adding bedrooms and bathrooms, finishing the basement and installing a security system.
In addition to the monetary benefits, home improvement projects may also reduce the amount of capital gains tax that you’ll be liable for when you sell your property. The IRS calculates your taxable profit from the sale of your property by subtracting your cost basis, which includes your purchase price plus the cost of any improvements. By increasing your home’s cost basis with home improvement projects, you can reduce your taxable profit and potentially save on capital gains taxes.