These Home Improvements Could Save You Money!
When we make repairs, changes, or improvements to our house, we always hope that these projects will have some positive effect on our bottom line. In other words, we hope that money spent on sprucing up the house or adding something new will be money WELL spent, with the opportunity to reap some extra rewards in the form of cash, either immediately or in the long run, most likely when it’s time to sell our property.
That’s good, solid thinking. Aside from repairs that are done out of necessity – like replacing old appliances or fixing the HVAC unit – home improvements should be done in a way that they are to your advantage. And while most home improvements are not immediately tax deductible, some are, and others will allow you to save money later on down the line.
Which home improvements are tax deductible NOW?
There aren’t a lot of instances where home improvement projects will impact what you pay in taxes for the current tax year, but there are a few.
- Improvements for medical reasons – If you must add to or adapt your home in order to accommodate a person in a wheelchair (you, a spouse, or a dependent), you may claim your expenses for this project for the tax year during which the project was done. These home improvements must be medically-necessary and cannot include things like new landscaping in your backyard. What they can include are things such as lower kitchen cabinets for access from a wheelchair, adding an elevator or other type of lift, widening hallways and doorways, or renovating a bathroom for ease of mobility. In most cases, if you have a trusted home improvement specialist, they can provide you with the details on what is deductible.
- Improvements or additions for a home office – In order to reap these tax benefits, you must be a self-employed business owner using a portion of your residence for business purposes only. For example, you can’t say I’m going to renovate the kitchen for business purposes because I sometimes sit at the kitchen table and do my accounting, because the kitchen isn’t your dedicated workspace. You also can’t write off improvements if you are an employee of another company who just happens to work from home. But if you fit the parameters of a self-employed business owner, you can certainly deduct things like adding an office space onto your house or improving your current space.
- Qualified energy generating systems – These can earn you “tax credits” from the government, which are a bit different from tax deductions. Credits are for a specified amount of the purchase price of the items. That means if you pay $40,000 to purchase a solar heating system of some sort and you are eligible for a 10 percent tax credit, you will receive $4000 off on your tax bill. Those energy generating systems that may qualify for tax credits include solar panels, solar water heaters, geothermal heat pumps, small wind turbines, or fuel cells. If you are considering these items, check with a vendor and/or installer for more information on tax credits as the items must be certified in order to receive credits.
Which home improvements are tax deductible later?
Of course, when you sell your home, you can reap the benefits of your home improvements if you keep accurate records of them, including prices for products, labor, and installation. Qualifying home improvements can be deducted from your tax basis, which is the amount of profit you make when you sell your home and on which you will pay taxes for that year. Your real estate agent can provide you with the ins and outs of reducing your tax basis, or you can consult with the accountant who does your taxes to learn more about this benefit.