What is a capital improvement in real estate?

A capital improvement in real estate refers to significant enhancements or upgrades made to a property that add value or extend its lifespan. These improvements go beyond simple repairs or cosmetic upgrades, and they typically involve major renovations that improve the property’s functionality, efficiency, or overall value. For example, adding a new roof, building a deck, or upgrading the heating and cooling systems are considered capital improvements because they not only enhance the property but also increase its resale value and longevity.

In contrast, minor repairs, routine maintenance, and cosmetic upgrades do not qualify as capital improvements since they do not significantly enhance the property's value or extend its useful life. Minor repairs are usually straightforward fixes that restore the functionality of a component without making any substantial alterations, while routine maintenance involves regular upkeep tasks that keep the property in good condition without enhancing its overall value. Cosmetic upgrades, although they may improve aesthetics, often lack the lasting impact associated with capital improvements and do not fundamentally change or enhance the property's structural or functional value.