Most homeowners know that by making renovations they can greatly increase the value of their property, but did you know that you can also save money on your taxes by making these improvements? By qualifying for home-related tax deductions, you are guaranteed to pay off the hard work and money needed to upgrade your property.
Make the following home changes and you’ll be sure to see a return on your investment coming from tax time.
Add a Home Office Space
While everyone used to be eligible for tax deductions from home office, a shift occurred in 2018. Only those who are self-employed or run their own business can now deduct their home office expenses from their taxes because of an update in tax law.
You are eligible for a major deduction if you are self-employed or run your own business but do not have a home office. Use this opportunity to transform a bedroom or a portion of your living space into a work-specific zone. Be sure to save the receipts and deduct them from your taxes from all the costs incurred.
In addition to the deductions that you will qualify for the year you create your office, each year thereafter you will be eligible for deductions. Keep track of the necessary improvements to your office space and the repairs needed to keep your office as these expenses are fully deductible. Furthermore, repairs and upgrades to your entire home (such as a new roof or air conditioning) are partly deductible as a work-related expense.
Create a Rental Space – Apartment or AirBnB
You can save money on your taxes by renting a portion of your home if you have extra space that could be renovated or an existing in-law suite. The rental property deductions are similar to those for a home office. Reparations you make in your rental property are fully deductible and some of the repairs you make to your home as a whole are deductible. You may also be eligible to deduct the following expenses in addition to repairs: advertising, rental agent fees, property taxes, utilities, interest in cleaning and mortgage.
Look for Capital Improvements
There is a big difference between repairing and doing home improvements when it comes to tax deductions. Costs can be deductible every year if you have a home office or rental. Major improvements that increase your house’s value for more than a year (also known as capital improvements) can not be deducted annually, but they can save you thousands of dollars in taxes when it comes to selling.
You may be subject to a federal tax, depending on the total capital gain you receive on your home when you sell. Because of this, keeping detailed records of all the improvements they have made that have increased the value of their home is important for homeowners. It is possible to deduct these expenses from the capital gains tax.
Examples of capital improvements include:
- Installation of a new roof
- Remodeling of the kitchen
- Adding to a master suite
- Insulation improvements
- Restoration of the home after a disaster
- Finishing of the basement
- Replacement of the water heater or furnace
Consider Adding Energy Efficient Upgrades
Making your home more energy efficient will not only save you money on your utility bills every month but thanks to the Renewable Energy Tax Credit you will be eligible for tax deductions.
You can receive a credit equal to 30% of the cost of your energy-efficient upgrade, including installation, under this initiative. Home improvements may qualify as follows:
- Solar panels (as long as the household power is used)
- Geothermal heat pumps that meet the Energy Star guidelines
- Solar-powered water heaters used to heat water used inside the house (swimming pools and hot tubs do not qualify for this tax credit)
- Wind turbines that generate up to 100 kilowatts of electricity
- Fuel cells that rely on renewable energy to generate residential energy
Home Improvements for Medical Conditions
If due to a medical condition affecting you, your spouse, or one of your dependents, you make improvements in your home, this update is likely eligible for a tax deduction. But before you make major renovations with the expectation of this year’s deduction, you must first assess whether the project increases your home’s value. 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:
- Installation of support bars in the bathroom
- Modifying warning systems such as fire and carbon monoxide detectors
- Installation of a wheelchair ramp or lift
- In the kitchen and bathroom, lowering cabinets
- Hallway and doorway widening
Maximize your investment by keeping the previous tax deductions and credits in mind when renovating your home. You’ll be sure to pay off your hard work and home improvements with some careful planning and a little knowledge about tax law.