Permitted Capital Improvements

What Are Permitted Capital Improvements (PCI)?

Permitted Capital Improvements (PCI) are specific upgrades or additions to a property that may be added to the property’s resale value under certain deed restricted or affordable housing programs. These improvements are regulated to ensure affordability and fairness in the resale process. Each deed restriction, housing program, jurisdiction, municipality, or community may have its own list of what qualifies as a Permitted Capital Improvement (PCI) and its own process for approval and documentation. Some may not offer PCI programs at all.

Why do Permitted Capital Improvements matter?

In deed restricted housing, the resale price of a home is often capped in order to maintain long-term affordability. This is where the term “price capped deed restriction” comes from. However, owners are sometimes allowed to recover the cost of certain improvements they make to their property. Permitted Capital Improvements, or PCIs, are the mechanism by which these costs can be added to the resale price. This process is always subject to the specific rules of the program and any required depreciation schedules.

Common Features of Permitted Capital Improvement Programs?

While every program is different, most share some common elements:

  1. Eligible Improvements: PCIs usually include permanent upgrades that add value or functionality to the home, such as new appliances, flooring, cabinets, or energy-efficient systems. Some programs allow structural additions or accessibility modifications with prior approval. Items like maintenance, décor, tools, and removable items are generally not eligible.

  2. Depreciation Schedules: Most programs require that the value of improvements be depreciated over a set period (for example, 5 or 20 years), meaning only a portion of the original cost may be added to the resale price, depending on how much time has passed since the improvement was made.

  3. Cost Limits: There is often a cap on the total value of PCIs that can be added to the resale price, such as a percentage of the home’s value over a five-year period. Costs cannot be rolled over into future periods.

  4. Documentation Requirements: Owners must provide detailed documentation, including receipts, invoices, and proof of payment. Only actual out-of-pocket costs are eligible. Owner labor or appreciation in value is not included. Work requiring permits must have proper approvals.

  5. Approval Process: Some improvements require written approval from the program administrator before work begins. All documentation is typically reviewed during annual recertification, at the time of resale, or when refinancing.

  6. Exclusions: Routine maintenance, repairs, and cosmetic upgrades are usually not eligible. Work done without required permits or association approvals is also excluded.

Typical Permitted Capital Improvement Process

While every program is different, most share some common elements:

  1. Review Deed Restrictions and Housing Guidelines: Check your specific program’s rules to see what improvements are eligible and what documentation is required.

  2. Seek Pre-Approval (if required): For major or structural improvements, get written approval before starting work.

  3. Complete the Work: Use licensed contractors if required, and obtain all necessary permits.

  4. Keep Records: Save all receipts, invoices, and proof of payment. Organize them by date and type of improvement.

  5. Submit Documentation: When you sell or refinance, submit your documentation to the program administrator for review. Only eligible, documented costs will be considered.

  6. Depreciation and Limits Applied: The program administrator will apply any required depreciation and cost limits before adding the value of PCIs to your resale price.

Key Takeaways

  • PCI rules and processes vary by deed restriction, housing program, jurisdiction, municipality, and community.

  • Not all improvements are eligible. Always check your specific guidelines.

  • Proper documentation and compliance with permitting and local building codes are essential.

  • There are limits on how much can be added to your resale price for improvements.

  • Contact your program administrator early in the process for guidance.