Tax time is just around the corner, meaning we are all about to sit down, crunch numbers and file our taxes. While paying taxes is unavoidable, you can ease the burden by deducting certain home improvement projects you have completed throughout 2016.
Many homeowners are not aware that there is a range of eligible home improvement deductions available that you can write off as part of your taxes.
Let’s take a look at some of the most common tax-deductible home improvement projects.
Capital Improvements
In order to qualify for a deduction, your home improvement project must qualify as a capital improvement, that is something that will ultimately add long-term value to your home. Some ideas for home improvements that will make great tax deductions include:
- Creating a home office within part of your living space. Note: this is only applicable, if you actively work out of your home office instead of having a business space for the same purpose.
- Redesigning a portion of your home, from an apartment over the garage to the living space in the basement, as a rental space.
- Solar energy generation through solar panels and other additions to your home.
- Energy-related home improvements that will reduce your energy footprint and make your home more energy-efficient such as insulation.
- Installing items that are medically necessaryin order for you or a member of your family to remain in the home: adding wheelchair ramps, creating larger doorways, or adding handrails in the bathroom, for example.
Things That Don’t Qualify
While it’s tempting to try to claim every home improvement purchase as a tax deduction, unfortunately it is not that easy. Several home improvement purchases might make your life easier, but they are not going to ultimately add value to your home. These might include:
- Purchasing new kitchen appliances, a new washer and dryer, or other items that are designed to make your life easier, but may not be included with the price of your home if you were to sell.
- Redoing the design of a specific room.
- Purchasing new furniture.
- Temporary additions to the home that are later removed.
- Pools, sculpture gardens, and other unnecessary items that are for your personal enjoyment.
- New carpeting or flooring, painting the interior of the home, or other cosmetic changes that are matters of personal preference.
- Repairs to your home, especially those that naturally occur over time and need to be completed as part of home ownership.
Other Tax Benefits of Home Improvements
While you might not experience a tax benefit this year as a result of including a home improvement, improvements made to your home that increase its value may have a significant impact later when you sell your home.
Any time you make improvements to your home, they are added to the base amount that you spent on it. That means that when you sell the home at a significant profit, you can reduce the profit by the amount spent upgrading the home.
If you have purchased a new home, one of the best ways to use the money spent on home improvements as a tax deduction is to use mortgage money for your home improvements. The interest on the loan is then tax-deductible, saving you some expense in the long run.
Balancing your home improvement needs with the gains that you would like to see on your tax return can be a challenge. In many cases, however, those home improvements can go a long way toward increasing the amount of your tax return, or at least reducing the amount you actually have to pay. Be sure to consult with a tax professional in order to receive the best possible results from your home improvement efforts.
