Are Home Improvements Tax Deductible?
For some people, home improvement is a way of life. And if you spend every other Saturday in the hardware store looking for items to tick off your list, you’re probably one of those people. However, all of those home improvements have a knack of racking up the dollars. And with that expense comes a legitimate question that a lot of people are beginning to ask; “are my home improvements tax deductible?”
It’s a fair question, and it’s one that’s a lot more complex than you’d think. Are home improvements tax deductible? The short answer is “no”. However, this doesn’t mean that your home improvements do not have a tax benefit, which is different from a tax deduction. A tax benefit can be a hugely valuable asset to your tax return.
Let’s have a look at some of the ways that it can help you. These may not be home improvement tax deductions that you can use straight away, but they’re still very useful in the long-term.
Here are a few things to look at for your home improvement tax deductions 2016.
Reduces Taxes When You Sell Your Home
Any home improvements that you carry out on your home are considered an expense that you took out at a cost, and that cost eats into the profits that you’re being taxed on – hence, they can be deducted. Basically, home improvement expenses can help reduce the amount of taxes you have to pay when you sell your home at a profit.
This is how you make your home improvements tax deductible; by claiming them after a sale. When you sell your home, your “tax basis” is considered the profit you made on the property, so the value of your improvements is considered a home improvement tax deductible.
Use Your Mortgage For A Tax Deductions, Of Sorts
The savvy home improver uses the mortgage they used to purchase the property to help bolster their potential home improvement tax deductible.
You must ensure that the mortgage you take out to buy a home includes additional funding to make renovations. It must specifically mention this in the mortgage papers and have a fixed amount. You can deduct the interest on that extra amount from your regular income as part of your mortgage interest deduction.
If the mortgage you take out to buy a home includes additional money to make renovations, your acquisition cost for the home includes this amount. You can then deduct the interest on this amount from your income as part of your mortgage interest deduction.
Don’t Forget To Go Green When Remodeling
Remodeling your home is an expensive challenge for almost anyone, and that goes double when you realize you can’t knock any of the expense off your federal taxes. But the savvy home improver will know all the tricks of the trade.
If you ensure that your remodeling job includes the installation of solar panels, cells, geothermal or wind energy technology, you could claim up to 30% of the cost, and that applies to both the items themselves and the labor.
So, the real moral of the story is this; you may not be able to claim a home improvement tax deductible directly – but with a bit of thought, a good accountant, and an eye for detail, you can make it work for you.