Capital Improvements

Capital improvements are permanent, value-enhancing changes to a property that become part of the real estate itself. In New York, true capital improvements are not subject to sales tax, and contractors don’t have to charge sales tax if the work qualifies and the homeowner signs Form ST-124.

Examples of capital improvements include:

• Adding a new room or extension

• Installing new flooring throughout the home

• Building a deck, patio, fence, or driveway

• Replacing all windows in a home

• Converting a basement into a finished living space

To qualify as a capital improvement, the work must meet all three conditions:

1. Adds value to the property

2. Becomes a permanent part of the property

3. Is intended to remain for at least one year

Repairs, maintenance, and replacement of a single component typically do not qualify. Contractors must be careful—misclassifying taxable work as a capital improvement can trigger sales tax penalties.