Are Home Improvements Tax Deductible?
We are almost at the years end and everyone begins thinking about their taxes. Like a fox it has slowly creeped up on all of us, don’t be found scrambling, rather educate yourself in advance.
So is their a tax incentive to home improvement projects? Yes, but not in the way you are thinking. Home Improvement projects do affect the way you file your taxes and can help you save money but are not something you can deduct. Still want to save? You just need to know how. Today we will highlight some of these ways and try to explain how it works.
Disclaimer: Although we try to be as accurate as possible with our information, consult with your tax professional to help you out on a one to one basis as your situation may be different than described below.
So, how does it work?
Your home “basis” (as called by the IRS) is the cost of your home either when purchased or built. This cost also includes real estate taxes and closing costs on your home in the same year you purchased your house.
Now, how do home improvement projects affect your basis?
If you purchase your home for $500,000 in 2005 and are selling it this year for $800,000 you will have to pay tax on the profit you incur. What you can do to minimize the tax that you pay on the profit of your home (once sold) is add the cost you spent on home improvements to the cost of your home. You may not think this is important, or the amount that you can add is very minimal but it may end up saving you thousands of dollars in the future.
Home improvement costs that you can add to the cost of your homes basis includes both labor costs (not your own labor) and material costs. So if you for example add a bathroom to your home you can add the cost of this addition to your home basis ultimately deducting this cost from the profits and saving on taxes when it comes time to sell your home. Though unfortunately you cannot itemize home improvements for deduction there is this tax incentive that you now know.
A bonus plus side? You get to enjoy the benefits of your home improvement projects knowing that you will save on taxes when it comes time to sell.
The IRS page for Homeowners explains this process in more detail as well as providing a chart to help monitor all of your home improvement expenses (make sure to save receipts).
If you would like to know how this works in depth read it here: IRS Tax Info for Homeowners
But can I save today?
Maybe it’s time to consider making your home more energy efficient? You can currently save tons of money by installing new Energy Star appliances and products. Stoves, AC units, Insulation, Roofs, Heaters, Windows & Doors, Solar Energy Systems and more.
You can receive a tax credit of 10% for many upgrades performed under $500 or up to a 30% tax credit on some bigger improvements with no maximum cost. This includes Solar Energy Systems, Wind Turbines, Geothermal Heat Pumps, and Fuel Cells.
For full list of tax credits and details on Federal Income Tax Credits for Energy Efficiency visit www.energystar.gov
Another tax credit where you kill two birds with one stone. Not only will you save tons on your energy bill or even cut it to zero with solar or wind energy, you will get up to a 30% credit on your taxes from the IRS.
Once again we remind you that although we work hard to ensure all of our information is accurate we recommend that you consult with your tax professional if you have any further questions concerning home improvements and tax deductions/credits.