If you have to do any form of home improvements, you probably want to know whether it is tax-deductible or not. Well, the first thing you need to know is which one of the home improvement projects can be deducted. If you have already done some type of renovation in the past few years or you plan to do so, these are important things to consider.
Home Improvement Projects
You could be eligible to receive a tax deduction for several different kinds of projects in your home. However, it depends on which one you are trying to complete. You also have to consider whether it is a simple improvement or an entire repair project. It could be some form of construction where might be adding on a room or fixing up the basement for an office.
There is a difference between repairing and improving your home. When you repair the home, it is a modification and the attempt at restoring a specific area of the home to increase its value. If you are doing a home repair for that reason, it might not be tax-deductible unless you are going to use the area as a rental property or home office.
Home repairs can include the replacement of a window, which has been broken, repairing a leaky faucet, replacing roof shingles or fixing a broken door, just to name a few. To improve your home, this may include adding a new roof, new driveway, insulation, new siding and installing a new septic tank or appliances. Most improvements are tax-deductible, while others are tax-deductible in that same year you sold the home.
An example is having a home improvement done in 2014 and after selling the house in 2019; those deductions would be recognized by the IRS as being valid on your 2019 tax return. If you don’t plan to put your home up for sale the next year, you should still document the home improvements made along the way.
When you get ready to file taxes again, you will have a compilation of the expenses from your upgrades. If you are not sure whether it is a home improvement or repair, then, it is best to speak to a tax professional or your accountant prior to filing.
IRS Publication 523 indicates that the only way to qualify for home improvement is it has to be a task that adds value to the home, prolongs the life of the home or adaptation for new uses. If you have done repair work and it is part of the improvement, then it should also be included. Let us now look at several home improvement projects, which can be added as deductions on your tax return.
Renovations to Improve Energy Efficiency
For a renovation to improve the energy efficiency in your home, you have to claim the deduction in the same year everything was done. You can only claim it in a credit of approximately 10 percent of what it cost to complete. You can also claim any expenditure related to the amount of energy used for the entire year.
You have a limit of $500 credit. Every year, the tax law is different and so, you may have to seek the help of a tax expert to know how much credit you should deduct. In fact, the tax law is different for various types of energy sources and improvements such as solar, geothermal, wind turbine, solar water heater, energy-efficient windows, and fuel cell.
When you install a solar energy system on an existing or new home, you will receive as much as 30 percent credit for the cost of installing it. The credit is not only for the main residence but also for a home that has been recently constructed.
Installing Medical Equipment
If you have someone ill in your home or you are a person with a medical condition, which requires some type of home improvement to facilitate the changes. For example, if you have to install medical equipment, the expenses could be tax-deductible. However, the installation must be for the full purpose of providing medical care to you or the person in question. These deductions would apply in the same year that the equipment was purchased. While this does not add value to your home, it is still fully tax-deductible. Other things that would qualify:
* If you built a ramp to enter and exit a building while in a wheelchair
* Widening a doorway or hallway for easy access
* Modifying or lowering your kitchen cabinets to reach them
* Adding a lift
* Installing a bar in your bathroom for support
* Making changes to the smoke detector or fire alarm
The Home Office
You can definitely claim deductions for a home office, which needs improvements as long as you exclusively use this portion of the house for business. As long as you are self-employed and run a business in your home, you can deduct home renovation expenses. If you are eligible for any type of tax break for having a home office, you can claim both improvements and repairs in the same tax year. If your office is 20% of the space in your home, your deductible would be 20%.
If you have a rental property and have done any improvements or repair, it could be deductible under certain circumstances. The repairs done to the rental property are deductible because it goes toward maintaining the property for the tenants to live in. However, the deduction has to be done in the same tax year. Kitchen remodeling, bathroom renovation, room addition, swimming pool installation and appliance replacement adds value to the property.
Once you do upgrades to your property for any reason, it is safe to say that you might be qualified for a tax deduction. You should definitely consult with a tax professional if you are unsure.