You may want to consider investing in some improvements to your current home as spring approaches. Before beginning, it is wise to see if the home improvements you are contemplating are eligible for a home improvement tax deduction.
Generally, you cannot deduct home repairs or home improvements on your tax return in the current tax year. However, if you are selling your home, home improvements may potentially reduce your capital gain. The IRS has a nice publication, that does a good job of explaining what improvements might qualify.
The first thing you need to understand is the difference between a home improvement and a home repair. A home repair is fixing a problem. For example, repairing a hole in the roof, fixing a leaky faucet or repainting a room would be considered repairs. Remodeling a kitchen, adding a room, building a garage or installing a swimming pool would be classed as improvements. These improvements add to the living appeal of the home’s owners and usually add value to the home.
The Internal Revenue Service has strict guidelines on how a homeowner can claim a tax deduction for home improvements. It is strongly recommended that before you hire a contractor or start any home improvement works that you obtain advice from you tax consultant or from the local office of the IRS.
Tax deductions can fall into any of several different categories. A medical condition that required providing disabled access to home would normally be classed as a home improvement.
If you are planning improvements to an area of your home that is in need of repair you may be able to include the repair as an improvement. The Tax Act states that where a repair is carried out in the same area of the home that is being remodeled then the repair can be included as part of the remodeling project. So, if you are planning on remodeling your kitchen don’t forget to take care of the leaking pipes at the same time and claim the entire project as a deduction.
Tax credits provide significant savings to the homeowner. A tax deduction for home improvements can reduce the amount of income on which tax is payable, a tax credit directly reduces the tax itself. Tax credits are available for many types of home improvements, notably for improving the energy efficiency of your home. For example, installing insulation, adding energy-efficient windows, and some types of highly efficient equipment for cooling and heating, and solar water heating may qualify for tax credits.
And when you begin your home improvements remember to maintain accurate records of spending and save all receipts. This is an enormous help when the time comes to claim your home improvement tax deduction.
