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Are Home Renovations Tax Deductible?

April 3, 2018

You might be wondering if home renovations are tax deductible, especially at this time of year when taxes are on everyone’s mind.




Home renovations can be expensive — and so can tax bills — so the more you can save in either realm, the better off you are. 


But you must be careful, lest your savings cost you more in the long run. You don’t want to pay for shoddy renovations, and you don’t want to take illegal tax deductions that could end up costing you more later.


Tax Deductible Home Renovations


With home renovations, your tax deduction eligibility depends on whether you are making repairs or doing renovations. Repairs are not deductible. With renovations, you cannot deduct the cost next year of projects you do this year.


However, if you save your receipts, you can deduct the total from your profit when you sell, according to Intuit.

As U.S. law reads now, the first $250,000 of profit on your house is tax-free. You may think it unlikely that you would make more than this in a profit, and therefore think it wasteful to save your receipts. But depending on the market, if you live in your home for 20 years or longer, it could easily sell for five times as much as you paid for it.


Plus, the $250K number is tied to the economy and the value of the dollar, so it could change. Further, Congress could simply abolish it altogether.


Which Home Renovations Are Tax Deductible?


On the more extreme ends of the scales, it’s easy to tell what is an improvement and what isn’t. Adding a room? That’s an improvement. Painting the living room? No. But there are so many gray areas that even the IRS can’t make a rule for every scenario. 


What if you replace the screens on your porch with walls, turning it into a room? That’s probably an improvement. But what if you just changed them out for glass, turning it into a sunroom? Hard to say. 


Better to save your receipts and leave it to an accountant, because a scenario that might be clear today might be muddy 10 years from now, and vice versa.


What About Tax Deductions for Home Offices?


Home offices are deductible, but the IRS makes lots of strict rules about them. If you remodel a room in your home to act as a home office, these costs are deductible, but it must be exclusively used as an office. Do not store ski equipment in there. Do not let your kids play in there. If the IRS finds out, you’re toast.


In an example on IRS.gov, someone asks if it’s OK if their mother-in-law stays in the office on her annual visit, and the answer is no.


So don’t embark on a home renovation thinking you can write off the cost anytime soon, because more often than not, you can’t.


But you should embark on a home renovation if you want to live in a modern, spacious, beautiful home! Call Falk Construction for all your renovation needs — bathrooms, kitchens, basements, general contracting services and more.

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