In my last post, “Real Estate Alphabet Soup: H is for Homeowners’ Association” I continued my primer on the “alphabet soup” of real estate. This post continues to stir the “alphabet soup” with the letter “I.”
I is for “Improvements.” In the area of real estate, “improvements” are a valuable addition to property, or an upgrade or enhancement to its condition, more than mere repairs, the cost of which, in terms of labor or capital, are intended to enhance the value, usefulness or purpose of the property, or to adapt the property for new or additional purposes. Another way to say it is that an “improvement” is the development of any land or buildings which, by the expenditure of labor or money, is intended to do more than merely maintain, repair, replace or restore the property to its original condition but, rather, is intended to enhance and increase the value of the property.
Improvements are considered to be permanent and fixed or affixed to the property so that they become a part of the property, as compared to a temporary removable item. So for example, a garage constructed on a property is considered an “improvement”, in contrast with a temporary, movable shed which may be removed from the property and, therefore, is not considered an “improvement.” Interior “improvements” may include, for example, built-in shelving and cabinets which are permanently affixed to the property, in contrast with removable shelves or furniture.
From a real estate tax perspective, real estate is assessed and valued based on two separate components: (1) the land; and (2) any “improvements” constructed on the land. Land which is vacant and “unimproved” is assessed and taxed only on the value of the land. Land which is improved by buildings or structures is assessed and taxed both on the value of the underlying land, as well as on those structures or “improvements” built upon the land.
Of course “beauty is in the eye of the beholder” so some people may not consider certain “improvements” to be an improvement at all, but in the real estate world those “improvements” do have a value.
In my next post, I will move on to the letter “J”, the next letter in this real estate “alphabet soup.”
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.