In most situations, home improvements made to primary residences are considered personal expenses, which means they’re not tax deductible. There are a few exceptions to this rule, though, which can earn you and your household some pretty enticing tax benefits in the coming years. Let’s check out the ins-and-outs of home improvements that can help you make the most of your refund during tax season.
Who ever said going green has to be expensive? The Residential Energy Efficient Property Credit is an incentive for taxpayers to purchase alternative energy products and equipment for their home, such as solar hot water heaters and wind turbines. The home renovation tax credit covers 30% of the cost, and with the exception of fuel cell property, there’s no cap. In most cases, even the cost of labor will fall under this category, so it’s a great perk for the environment-minded homeowner.
Word to the wise: Make sure the alternative energy product qualifies for this tax credit before purchasing it. You can check for the manufacturer’s tax credit certification statement, which will either be on their website or the product packaging.
You should also hurry up and get this credit before it’s too late! It runs out at the end of 2016. Start putting up those solar panels now!
Improvements That Double as Medical Expenses
If a home improvement is medically necessary, it may be deducted under medical and dental expenses as long as the total cost of these expenses exceeds 10% of your adjusted gross income (or 7.5% if you or your spouse is 65+).
These home improvements include widened doors for wheelchair access, ramps, handrails, warning systems, in-home elevators and much more. If the home improvement does not increase the value of the home, it can be fully deducted. But in the event that the home improvement adds value, the difference between the cost of the home improvement and the increase in the home’s value is deductible. For example, let’s say you put in a pool for therapeutic reasons and it cost $10,000 but only added $8,000 in value to your home (as measured by an appraisal). This means that you can deduct $2,000.
Home Office Deduction
If you work from home, you may be able to deduct the cost of certain improvements in this space. This deduction includes regular maintenance and repair, such as putting in new carpet or hiring someone to paint the space. You can even deduct home office supplies like a work computer, office supplies or a cell phone.
In order to qualify for this deduction, this space will need to be exclusively used as a home office (it can’t double as anything else), and it needs to be used for business purposes on a regular basis. However, “regular” is a loose term and doesn’t necessarily mean you have to be in that space eight hours every day. In an interview with Forbes, tax expert Barbara Weltman explains that this deduction doesn’t only apply to full-time businesses. “If you have a part-time business from home and work on it one day a week, that’s OK,” she says. “The key is that you use the office on a constant basis, not necessarily daily.”
While home improvement deductions are few and far between, some of them can help your bottom line, come tax season. If you’re interested in more tax talk, check out these strange tax deductions!
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