It would be nice if our home improvements were tax deductible, but is this ever the case?
Yes, but not often, so find out how you can lessen the financial burden of home improvements with tax deductions.
The government generally allows tax deductions for expenses that behoove it. For instance, you can deduct business expenses because the government wants you to work, provide a service to consumers and be a productive member of society. Charitable donations are deductible because the government benefits from your charitable giving.
Not all tax breaks make as much sense. Those who remain single and/or childless pay more in taxes than those who get married and have children. Most people are familiar with this tax law, but did you know music lessons are tax deductible? But only if they are prescribed by a doctor. And have you heard that you can deduct some of your pet care on your taxes? But only if your pet is a guard dog.
So what kind of home improvements are tax deductible?
Medical Home Improvements Are Tax Deductible
First, any kind that are medically necessary. Ramps to front and back doors, for instance, if a wheelchair user lives in the house. Ditto for any other modifications for handicaps, such as widening doorways, installing elevators or lifts, adjusting counter height and adding grab bars in a bathroom.
These types of home improvements are easy to identify, but some others may fall into a gray area. For instance, if your home renovation adds value to your property, you may be able to deduct only a portion of the expense. An example would be adding a hot tub for a resident with arthritis or another muscle condition.
Or what if you had a child who was a severe asthmatic? You may need to rip out all the carpeting in your house, and if the floors underneath are unfinished, you may want to get them finished. But this would be a major home improvement, so you would likely only be able to deduct a portion of this expense.
Include Home Improvement Expense in Mortgage
Another way to use home improvements for tax deductions is at the time of sale. If you roll the expected costs of home renovations into your mortgage, you will be able to take a larger mortgage interest deduction than you would if you had taken a separate home-improvement loan.
A third type of home improvement that’s tax deductible is related to energy. Adding solar panels to your home adds value, but the government allows homeowners to write off 30 percent of the cost. This can amount to many thousands of dollars, depending on the size of your system.
Other tax-deducible energy improvements include adding a heat pump, solar water heater or wind turbine.
These rules and more are outlined on the TurboTax website, but keep in mind tax rules are constantly in flux, so never plan a home improvement assuming it’s deductible without checking with your accountant first.
Falk Construction provides the best in all types of home improvements, tax deductible and otherwise. We specialize in new builds, renovations and general contracting services. Contact us today to find out more about how we can help you with your home improvement ideas.