Maximize Your Tax Return With Home Improvements

Written by Posted On Tuesday, 16 April 2019 10:11

Most homeowners know that they can greatly increase the value of their property by making renovations, but did you know that you these improvements also have the potential to save money on your taxes? By qualifying for home-related tax deductions, the hard work and money to put into upgrading your property are guaranteed to pay off.
Make the following changes to your home and you’ll be sure to see a return on your investment come tax time.

Create a home office space

While everyone used to be eligible for home office tax deductions, there was a shift in 2018. Due to an update in tax law, now only those who are self-employed or run their own business are able to deduct their home office expenses from their taxes.
If you’re self-employed or run your own business but don’t have a home office, you are eligible for a major deduction. Take advantage of this opportunity by transforming a bedroom or a portion of your living space into a zone dedicated specifically to work. Be sure to save the receipts of all the costs incurred and deduct them from your taxes.
Along with the deductions you’ll qualify for the year you create your office, you’ll be eligible for deductions every year thereafter. Keep a record of necessary improvements you make to your office space and the repairs required to maintain your office as these expenses are fully deductible. In addition, repairs and improvements made to your entire home (such as a new roof or air conditioning) are partially deductible as a work-related expense.

Renovate and rent out a portion of your home

If you have extra space that could be renovated or an existing in-law suite, you can save money on your taxes by renting a portion of your home. The deductions for rental properties are similar to those for a home office. Repairs that you make in your rental property are fully deductible and repairs that you make to your home as a whole are partially deductible. In addition to repairs, you may also be eligible to deduct the following expenses: Advertising, rental agent fees, property taxes, utilities, cleaning, and mortgage interest.
Make capital improvements.

When it comes to tax deductions, there’s a big difference between making repairs and doing home improvements. If you have a home office or rental, repairs may be deductible every year. Major improvements that increase the value of your house for longer than a year (also known as capital improvements) can’t be deducted annually, but they have the potential to save you thousands of dollars in taxes when it comes time to sell.

Depending on the total capital gain you receive on your home when you sell, you may be subject to a federal tax. Because of this, it’s important for homeowners to keep detailed records of all the improvements they’ve made that have increased the value of their home. These expenses can be deducted from the capital gains tax.

Examples of capital improvements include:
• Installing a new roof
• Remodeling the kitchen
• Adding on a master suite
• Improving the insulation
• Restoring the home after a disaster
• Finishing the basement
• Replacing the water heater or furnace

Make energy efficient upgrades

Making your home more energy efficient will not only save you money on your utility bills each month, but you’ll also be eligible for tax deductions thanks to the Renewable Energy Tax Credit. Under this initiative, you can receive a credit equal to 30% of the cost of your energy-efficient upgrade, including installation.

The following home improvements may qualify:
• Solar panels (so long as they are being used the power the home)
• Geothermal heat pumps that meet Energy Star guidelines
• Solar-powered water heaters that are used to heat the water used inside the home (swimming pools and hot tubs don’t qualify)
• Wind turbines that generate up to 100 kilowatts of electricity
• Fuel cells that rely on a renewable resource to create residential energy

Install medical home improvements

If you make improvements in your home due to a medical condition affecting you, your spouse, or one of your dependents, this update is likely eligible for a tax deduction. But before you make significant renovations with the expectation of deducting this year, you must first evaluate if the project increases the value of your home. Major home renovations completed for medical purposes that increase the value of the home (like installing an elevator) cannot be deducted on your annual taxes, but they may be eligible for a tax deduction as a capital improvement when the home is sold.

Here are some examples of medical home improvements that are tax deductible the year they are completed:
• Installing support bars in the bathroom
• Modifying warning systems such as fire and carbon monoxide detectors
• Widening hallways and doorways
• Installing a wheelchair ramp or lift
• Lowering cabinets in the kitchen and bathroom

Maximize your investment when renovating your home by keeping the previous tax deductions and credits in mind. With some careful planning and a little knowledge about tax law, you’ll be sure your hard work and home improvements pay off.

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