In this post, you'll learn ...
- Which types of home improvement projects are tax deductible
- Tips on tax deductions
- How to qualify for the federal property improvement loan program
As a homeowner, one of the questions that often gets asked is, “Can I receive tax breaks for home improvement projects?” Unfortunately, home improvements are not always tax deductible because the IRS considers them personal expenditures. Luckily, there are a few exceptions to this rule.
Home Improvements That Are Tax Deductible
If you currently use or plan to use part of your home to conduct business, you may be able to deduct the expenses related to home office operation. The IRS classifies these expenses as direct, indirect or unrelated. An unrelated expense, such as painting your kitchen, for example, is not deductible.
A direct expense is deductible in full and includes expenses only for the business part of your home. For example, you can deduct the full cost of adding new carpet or changing the paint color in your home office.
Painting Your Entire Home
- Typical Cost: $150
- Tax Savings: 100%
- Actual Cost: $150
An indirect deductible home office expense is one associated with the general upkeep and maintenance of your entire home. The amount you’ll be able to deduct is based on the percentage of your home that you used for home office repairs. Let’s say that your home office is 200 square feet and your home is 1500 square feet.
Divide your home office space by the total area of your home to get your business percentage. In this case, it’s about 13%. So, if you painted your entire home at a cost of $600, about 13% of that cost would be tax deductible.
Painting Your Entire Home
- Typical Cost: $600
- Tax Savings: 13% or $78
- Realistic Cost: $522
You can find more information about home office deductions, in the IRS’ “Business Use of Your Home.”
Energy Efficiency Deductions
There are several federal tax credits available for energy-efficient home improvements, such as heating and cooling equipment, water heaters, biomass stoves, windows, doors, insulation and roof installation. These products must be recognized by ENERGY STAR® to qualify for the tax credit. Along with the potential tax credits, the amount of money you could save on energy bills with energy-efficient home improvements is considerable.
For windows, doors and skylights that earn the ENERGY STAR® rating, there is a 10% tax credit up to $500, with windows capped at $200. This does not include the cost of installation. You don’t have to replace all the windows in your home to qualify. Visit energystar.gov for more information.
Tips on Tax Deductions
- Keep good records of all expenses associated with your home improvements. Keep all your receipts and documents. If you purchased energy-efficient equipment, you’ll want to save the Manufacturer’s Certification Statement as well as all related receipts.
- Important forms/publications for Home Office Deductions: 8829 and 587, Schedules C or E
- Important forms/publications for Energy Efficiency Deductions: 5695 (2017 form)
The Federal Property Improvement Loan Program
Offered by the Department of Housing and Urban Development (HUD), the Federal Home Improvement Loan Program helps low- and medium-income households pay for their home improvements. If you are in need of home improvement repairs and qualify, you can request this loan through a private lender. One restriction to keep in mind is that your home improvements must be more substantial than minor repairs or improvements. Again, you won’t be able to finance a new set of French double doors, but if you need to replace your roof, vinyl siding or make structural repairs, then this loan program is a viable option for you.
Do you still have questions about tax deductions for home improvements? Contact us for more information at 800-230-8301. Or, if you’re ready to start your home improvement project, schedule your free, in-home estimate online today.
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