The Need to Knows About Home Improvement & Taxes

If you are one the people who have an older type house and are looking to modernize it, read this article carefully. Whether you are making improvements, repairs, or just updating, your wallet will still take the same financial impact. They key is how to categorize each “upgrade”, this will determine if you can catch a tax break down the road or not.

A repair

A repair means your home is returned to its previous condition and doesn’t make it better than before. The nature and timing of the repair will determine how it will be viewed on your return. For example, patching and painting walls is tax neutral. They have no tax advantage.

Let’s say someone in your house has a disability, and they are bound to a wheelchair. If you build a wheelchair ramp, you are then allowed to claim every cent as a medical expense, but only if the improvement doesn’t increase the value of your home.

Energy-efficient upgrades

To qualify for an energy tax credit, you must improve your home using alternative energy. The Residential Energy Efficient Property Credit is equal to 30% of the cost of qualified equipment. A short list of the equipment is solar water heaters, wind turbines, and solar electric equipment. These credits have no cap for most property types, and the improvements do not have to be made directly to your home.

Can updates to a home office be deducted?

Yes! Repairs and improvements to the part of your home where you conduct your business is definitely worthy of a deduction. You just have to make sure the repair or improvement meets the criteria for business expenses to take the deduction. Deducting the cost over time could also be a reality, so check the rules carefully.

If none of these circumstances apply?

Don’t worry, if all your home improvements are viewed as capital improvements, you can still get a tax break by increasing your basis for purposes of calculating a gain or a loss come selling time.  The general rule of thumb for knowing which is a capital improvement or not, if you can carry the new microwave, it’s not a capital improvement. If it is staying while you’re leaving, like the kitchen cabinets, it’s a capita improvement.

Looking at the numbers

Let’s say I bought my house for $100,000 and did add new kitchen cabinets for $10,000. Adding the two together I would hope to get $110,000 for selling my home.

Just know that you cannot plan your improvements and repairs around your tax return. These don’t always show up when it is most convenient, but knowing the rules beforehand can have a positive impact on your wallet, and help you time the improvements that are in your control.

Post a Comment