Capital improvement is a term used to describe an upgrade, addition or alteration made to a property that has the effect of increasing its value. This could range from something highly visible such as adding a swimming pool, to more subtle projects such as replacing plumbing and wiring, adding insulation and replacing basic function HVAC systems. In the context of taxes, capital improvement can refer to an item that is made up of a capital item that does not have the characteristics of a repair or maintenance expense. Additionally, the IRS grants special tax treatment to qualified capital improvements.

The design and purpose of capital improvement projects can vary greatly depending on the location, age and condition of the property. For example, residential homeowners might choose to upgrade outdated electrical systems, replace worn shingles or paint existing siding. Commercial property owners might choose to install a new escalator, replace outdated HVAC systems or reconfigure office space.

Building owners may want to consider hiring a professional engineer or contractor to perform capital improvement projects in order to ensure that the work is done in accordance with applicable building codes and safety regulations. Engineers and contractors can also help devise a plan that is tailored to the owner's specific needs, budget and time frame. In some cases, capital improvements may also be eligible for special discounts, grants or other forms of government incentives. Property owners should research all possible sources of funding for large-scale projects. Capital improvements can be an excellent way for homeowners and businesses to increase the value of their property. Qualified projects are not only good investments, but in some states, capital improvements can allow landlords to increase the rent more than what the law would otherwise allow. Although costs may be substantial up front, in many cases, the benefits of a capital improvement project can be realized over time.