Looking to upgrade your home and save some money while doing so? This fun article from BH&G shows a number of ways to improve your home and deduct taxes at the same time. Did you know adding solar panels to your home can offer among these best returns? Get your questions answered by a Panasonic Installer today.
You might be able to write off some of the home improvements you made this year. Here is what experts have to say on how to qualify.
Tax season is fast approaching, and if you made some improvements to your home this year, there's some good news: You might be able to get a tax deduction on some of your upgrades. Generally, you can't write off most home improvements. However, there are some projects that are exceptions, so be sure to do your research or speak to your tax advisor on whether your remodel is deductible.
"The improvement cost must be below a certain amount, which changes from year to year and is determined by your income level, or it must meet specific criteria that qualify as a tax-deductible expense," says Dana Ronald, CEO of tax relief company Tax Crisis Institute.
When executing a home upgrade that might be tax-deductible, make sure you keep track of all important documents and payments. "You want to keep good records for any improvements made to your home," advises Kemberley Washington, tax analyst for Forbes Advisor. Washington recommends keeping copies of any invoices, bank or credit card statements, cancelled checks, and contracts to show as proof for a deduction.
"Before taking on any projects, make sure to check the specific requirements and any deadlines associated to receive any potential tax breaks," she adds. Here is a list of home improvements to consider that could potentially be tax-deductible.
Energy-efficient home upgrades can make you eligible for a tax deduction. "You can claim a tax credit for energy-efficient improvements to your home through Dec. 31, 2021, which include energy-efficient windows, doors, skylights, roofs, and insulation," says Washington.
Other upgrades include air-source heat pumps, central air conditioning, hot water heaters, and circulating fans. These energy-efficient additions may give you "a tax credit of 10% of the cost up to a total of $500 or for a specified amount between $50 and $300 depending on the improvement made," says Shelli Woodward, tax specialist at Merchant Maverick.
"You may also be eligible for a tax credit of 26% of the cost for renewable energy improvements related to geothermal heat pumps, small wind turbines, solar energy systems, fuel cells, and biomass fuel stoves," adds Woodward.
Home upgrades that are medically required for you or any family members who live with you might also qualify as tax-deductible. "Examples of this include widening doorways, installing ramps or lifts, lowering cabinets, and adding railings," says Washington. "In this case, you would need to itemize your tax deductions to take advantage of the write-off," she adds.
However, this might be a trickier deductible to qualify for. "You can only deduct medical expenses that exceed 7.5% of your AGI," explains Washington. Additionally, upgrades that increase the value of your home have to be prorated—the deduction only applies to the medical expenses.
You can potentially deduct any remodeling or renovations made to increase your home's resale value—but you can only claim it the year you actually sell the home. If you make the improvements using your Home Equity Line of Credit (HELOC), then the interest you accrue on the loan can be tax-deductible if you qualify for itemization, explains Eric J. Nisall, a tax accountant.
"If not, you may still benefit tax-wise, because you will add the costs of the improvements to the home's basis, which could potentially minimize any capital gains tax due if and when you sell the home," says Nisall.
If your home is your primary place of work, you can deduct improvements to your home office. "If you are self-employed and work from home, then you may be able to deduct some of those home improvement expenses," says Woodward. To qualify as a deduction, your home office must be in regular and exclusive use, and the principal place of your business, according to the IRS's standard rules for home office deduction.
Writing off upgrades to your home office sounds especially great at a time when so many of us are working remotely, but there's a catch: If you are a W2 employee who works from home, you are not eligible for tax deductions on improvements to your home office space.
This article was written by Hiranmayi Srinivasan from Better Homes and Gardens and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.