Making improvements and renovations to your home is an expensive proposition. Whether the improvement is a necessity such as replacing a leaky roof or a luxury such as adding a theater room to your basement, you want to maximize your investment. One frequently asked question is whether money spent on home improvements can be deducted for tax purposes. The answer is…it depends. Here is an overview of few ways in which home improvements may qualify as a tax deduction.
Some home improvements qualify as medical expenses. For example, if a situation arises that requires you to modify a bathroom, widen doorways, or install entrance ramps to accommodate someone with a medical condition, the costs can be deducted. There are several limitations to this deduction – but if you think your renovations qualify – consult an accountant for clarification.
Go green and get a deduction. You can claim up to 30% of the cost of installing energy generating items. These include solar panels, fuel cells, geothermal heat pumps, wind turbines, and solar water heaters.
Did you install a new energy-efficient HVAC system? If so, you may be able to get a tax credit for it. This deduction only applies to major systems. Therefore, while your new washing machine won’t qualify, a new hot water heater might.
When you Sell
This is a deduction you can only claim when you sell your house. Though it’s not completely straightforward, it can provide important tax advantages. Essentially, you can deduct the cost of home renovations from the profits you make when you sell your home, allowing you to lower or even eliminate your capital gains tax from the sale.
Home Office or Home Business
If you run a business out of your home, there are a few ways that you can use an improvement or renovation to catch a tax break. The amount you can deduct will depend on how the improvement relates to your business and how much of your home is devoted to the business space.
Home Loan Interest
Don’t overlook interest you are paying on home equity loans you took out to do the renovations. That interest can be a substantial deduction. You can deduct up to $100,000 in interest on home improvement loans for any kind of home renovation.