Investing in the home is always a smart move. Homes gain in value over time, and maintaining or improving the state of a home can help to maintain or improve its value as well. When making these home improvements, home owners may wonder if it’s possible to deduct some of these expenses from their taxes. Or they may wonder how this will affect their home’s appraisal value and taxes.
The IRS does offer some credits for homeowners who make certain improvements to their homes. Not every home maintenance, repair or improvement is treated equally however. Learning the difference between them can help homeowners understand the effect home repairs or improvements on their taxes.
Home repairs are carried out in the normal maintenance of the home and do not affect the home’s value or taxes and cannot be deducted from taxes at the end of the year. A home repair is something that is done to maintain the condition and therefore the current value of the home, rather than improving the home from its current state.
Home repairs include fixing a damaged roof, replacing leaking plumbing or faucets or patching basement floors and plaster wall cracks. These repairs are done to keep the home from falling into disrepair and as such do not increase the value of the home.
A homeowner undertaking home repairs or home maintenance does not need to add the cost of these repairs onto the tax basis of the property.
A home improvement is something undertaken by the homeowner which adds value to the home. This value is then added onto the tax basis of the property and will affect the taxable value of the home in the future.
Home improvements include additions to the home, such as a bathroom, additional bedroom or sunroom, or additions to the property such as a pool, or new fencing. A completely remodeled kitchen or bathroom, or a major renovation of the home can also be seen as a home improvement.
Home Improvement Deductions
Not all home improvements are tax deductible or eligible for tax credits, although there are a few ways in which a homeowner can make improvements to receive these deductions. Home improvements made for medical purposes, such as wheelchair ramps, lowered kitchen counters, installations of grab bars in bathrooms or a swimming pool could count as a tax deduction, provided that a Doctor is willing to write a letter testifying to their need.
Home improvements which are carried out to lower the energy needs of the home are eligible for tax credits. This can include water saving toilets or faucets, and Energy Star rated home heating and cooling appliances. Replacement windows may also be eligible for a tax credit. To qualify any home improvement done to save energy or resources must be carried out by a licensed professional, and careful records must be kept.
Homeowners with a large amount of left over construction materials may donate these materials to charities such as Habitat for Humanity and deduct these expenses. Normal home improvements and upgrades of the home, however are not eligible for deductions, but should be added to the home’s value and tax basis.
Investing in the home should be done to improve the value of the home, lower heating and cooling bills or for necessary purposes. While home improvement tax deductions may be available, the returns on a home improvement or home repairs will be found in the long-term investment in the property and not necessarily during tax season. Carry out home repairs as necessary to maintain the home’s value and condition, and engage in home improvements to improve the quality of lifestyle for those who live there, and know that the returns on these investments are worth it.
- BusinessTaxRecovery.com – Tax Deductions for Home Improvements
Rating: 5 out of 5