* Home Improvement Deductions:
Tax season is right around the corner, and that means many homeowners are looking for ways to reduce what they owe. One option: home improvements. Even as a tiny homeowner, there are a number of upgrades you can make that will reduce your tax bill. Here’s what you need to know about home improvements and their associated deductions. While the improvements themselves may force you to dig into your wallet, you’ll reap the benefits of these upgrades on a daily basis.
Save The Receipts:
The first rule for taking deductions on your home improvements is that you should always keep your receipts. In many cases, home repairs for your primary residence aren’t deductible in their own right, but if your home appreciates in value, you can use those receipts to reduce your capital gains tax. You have up to seven years to make these types of deductions, so keep those receipts on file through this period.
Emphasize Energy Improvements:
Energy efficiency is a top priority within our tax infrastructure, so focusing on these improvements can yield the greatest financial reward. For example, homeowners can receive up to a $1500 credit for replacing old windows and doors on their primary residence to reduce heat loss. Similar credits are also available for improved insulation and roofing. Additionally, 2019 is the final year for homeowners to claim a 30% credit for buying and installing solar panels before that credit rate begins to drop.
Opt Out Of Interest:
If you’re already paying interest on sizeable home improvement loans, you may find that your taxes strain your bank account, and that can mean you need to negotiate a tax installment agreement, could face wage garnishment, or end up owing back taxes – all situations that can hurt your finances in the long-term. But what can you do about it? You can’t renege on your loan payments, but you can, in fact, deduct home improvement loan interest from your taxes, as long as the loan meets two criteria.
First, to qualify for interest deductions, the loan needs to be secured by your primary residence; the place you live is your collateral. Second, you must use the loan to “substantially improve” that residence. Substantial improvements include a variety of changes, from adding insulation to paving the driveway or adding an entire room. Even adding a swimming pool counts as a substantial improvement, so ask a tax professional about any significant changes you’ve made to your home before filing your taxes.
Make Work Work For You:
Finally, if you work from home and have converted a part of your house to act as your office, then you have an additional deduction available to you. To determine how much your home office is worth from a tax perspective, divide your home office space by the area of your home. You can then deduct that percentage of general home upkeep costs as a business expense. In other words, while you can’t deduct painting the interior of your home, you can deduct the cost of painting your home office. You can even deduct utilities for that portion of your home.
Tax deductions are mysterious terrain, and homeowners have countless small opportunities to save, so save all your documents. The more information you can provide your tax professional about your home improvements and property use, the better positioned you’ll be to reduce your tax burden and funnel those savings into further economic activity.