PSI Oklahoma Real Estate Practice Test

Which of the following items would affect a homeowner's adjusting basis?

1. Installing a new roof

2. Installing a new furnace

3. Replacing windows with energy-efficient models

4. Repainting the interior

The correct answer is: Installing a new furnace

The correct answer pertains to the concept of adjusting a homeowner's basis in their property, which is crucial in determining capital gains tax when selling the house. Adjusting basis includes tracking improvements that add value to the property or prolong its useful life, ultimately affecting the homeowner's financial situation and tax burden. Installing a new furnace qualifies as a significant improvement, as it can enhance not only the efficiency of the home but also its overall market value. This type of upgrade is considered a capital improvement, which is added to the homeowner's basis. When the homeowner sells the property, the adjusted basis reflects the increased investment. In contrast, repainting the interior is typically classified as a maintenance expense rather than a capital improvement. While it may enhance the property's aesthetic appeal, it does not significantly add to the value or extend the life of the home on a long-term basis. Similarly, while installing a new roof and replacing windows with energy-efficient models could also be viewed as capital improvements, they were not the answer being referenced in this question regarding the most direct impact on adjusting basis in the context provided.