Tax

If you own or are considering buying an older commercial or rental building, the federal historic rehabilitation tax credit could return 20 percent of your renovation costs as a dollar-for-dollar reduction in your tax. Many states offer an additional credit.

How It Works 

The credit equals 20 percent of qualified rehabilitation spending on a certified historic structure. You claim it in five equal annual installments, beginning the year the building is placed in service. You must also reduce your basis in the building by the credit, which lowers future depreciation and increases your gain on sale.

What Qualifies

The building must produce income; your personal residence does not qualify. 

Your rehab spending within 24 months must exceed the greater of the building’s adjusted basis or $5,000. The National Park Service, through your State Historic Preservation Office, must certify both the building and the work.

Benefiting from the Credit

On a rental, the passive loss rules can delay or even destroy your tax credit benefit. Both tax law–defined real estate professionals and owner-operated businesses have paths that can avoid the passive loss rules. 

To realize the full credit, you need to have the building in service for five years. Selling within five full years of placing the building in service triggers recapture of some or all of the credit.

If you want to discuss the historic tax credit, please call me directly at 408-778-9651.

• By Leon Clinton
• October 31, 2026

If you are married and plan to sell your home, you may be able to exclude up to $500,000 of gain from tax. The length of your marriage does not matter.

To claim the full $500,000, you need the following:

• A joint tax return for the year of the sale
• At least one spouse who owned the home for 24 of the 60 months before the sale
• Both spouses to have lived in the home as their main residence for 24 of those 60 months
• No home sale exclusion claimed by either spouse in the prior two years

If your spouse lived in the home before the wedding, that time counts. You can even marry after the closing, as long as you file jointly for that year.

If only one spouse meets the residence test, the exclusion drops to $250,000. If your spouse is a few months short, delaying the closing could save tax on up to $250,000 of gain.

A surviving spouse who has not remarried can keep the $500,000 exclusion for sales within two years of the spouse’s death.

The limits remain $250,000 and $500,000 for 2026. Congress has pending bills to raise them, but none have passed.

If you want to discuss selling your home, please call me directly at 408-778-9651.

• By Leon Clinton
• October 29, 2026

When you sell your home, the tax on your gain depends on your basis, which is what you paid for the home plus the cost of improvements. But improvements count only if you can prove them.

Basis Matters More Every Year

The home sale exclusion of $250,000 ($500,000 for married couples) was set in 1997 and has never been adjusted for inflation, while home prices have roughly quadrupled since then. Many long-time homeowners now face a taxable gain when they sell.

In one court case, a couple claimed $286,070 in improvements but could not prove them. The court allowed $82,039, leaving the couple with tax on $101,907 of gain plus the cost of going to court.

What Counts

You add to basis any improvements that add value, extend the home’s life, or adapt the home to new uses, such as a new roof or a kitchen remodel. Repairs do not count, and neither do improvements you later removed or replaced. Depreciation, deducted casualty losses, insurance reimbursements, and energy credits reduce your basis.

Records to Keep

• The contract or proposal
• The final invoice
• Proof of payment (Download check images, since banks often purge them after about seven years.)
• A few dated photos (As newspaper legend Arthur Brisbane said, “Use a picture. It’s worth a thousand words.”)

Scanned records in an organized electronic folder are fine. Keep them as long as you own the home, plus at least three years after the year of sale.

If you want to discuss the income tax records you need for your home, please call me on my direct line at 408-778-9651

• By Leon Clinton
• October 27, 2026