Key takeaways from 5 Tax Benefits for Your Home Improvements:
- You might qualify for tax credits if you make certain energy-efficient improvements to your home.
- You might be able to deduct interest paid towards HELOC or Home Equity Loans.
- Capital improvements can help you pay less tax when you sell your home.
While home improvements, in general, are not typically deductible on your federal income taxes in the United States, there are certain instances where you may be eligible for tax credits or deductions related to these projects.
In this blog post, we will explore five ways you can potentially get a tax deduction or tax credit for your home improvements.
1.Energy-Efficient Tax Credits
The federal government offers tax credits for specific energy-efficient home improvements. By installing energy-efficient windows, doors, roofing, insulation, and certain heating and cooling equipment, you not only contribute to a greener planet but also qualify for tax credits that can lower your tax bill.
According to IRS Code Section 25C, if you make qualified energy-efficient improvements to your home after January 1, 2023, you may qualify for a tax credit up to $3,200. You can claim the credit for improvements made through 2032.
The total credit allowed varies per improvement. For instance, the credit for installing energy-efficient doors that meet Energy Star requirements is $250 per door, $500 total. Home energy audits, however, only qualify for a tax credit up to $150.
To determine which energy-efficient tax credits apply to improvements made to your home before January 1, 2023, visit the IRS website and speak to your tax professional.
2. Home Mortgage Interest Deduction
If you you took out a Home Equity Loan or Home Equity Line of Credit (HELOC) to pay for certain home improvements, the interest might be deductible.
Qualifying purpose
Check out “Is Interest on Home Equity Loans and HELOCs tax-deductible?” to learn what purposes qualify a loan for the interest deduction.
Itemized Deductions
To qualify for the interest deduction, you must itemize your deductions.
Example:
Let’s say you paid $9,000 in interest towards your HELOC and $6,000 in property tax in 2024.
Since the 2024 standard deduction is $14,600 ($29,200 for married filing jointly), itemizing your deductions is likely the best option to reduce your 2024 tax liability.
The reason itemized deductions might result in a lower tax liability is because your itemized deductions – the $15,000 you paid in mortgage interest and property tax combined – exceed the $14,600 standard deduction.
3. Home Office Deduction
If you have a dedicated space in your home that you use exclusively for business purposes, you may be eligible for a home office deduction. This deduction allows you to deduct a portion of home-related expenses, including mortgage interest, insurance, utilities, and depreciation.
Additionally, certain improvements made to your home office space may also be eligible for deduction, providing you with further tax benefits.
Check out “4 Ways Home Ownership Can Reduce Your Tax Bill” to learn more about both the Mortgage Interest and Home Office Deduction.
4. Medical Improvements
Sometimes, home improvements are made for medical reasons, such as installing ramps or widening doorways for disabled residents.
In such cases, you may be able to deduct some of these costs as medical expenses if they exceed a certain percentage of your adjusted gross income.
The IRS lists a few examples of qualifying home improvements for medical purposes in IRS Publication 52. Improvements include:
- Moving or modifying electrical outlets and fixtures.
- Adding handrails or grab bars anywhere (whether or not in bathrooms).
- Widening or otherwise modifying hallways and interior doorways.
- Installing railings, support bars, or other modifications to bathrooms, and
- Lowering or modifying kitchen cabinets and equipment.
It’s essential to keep track of these expenses and consult with a tax professional to ensure compliance with IRS regulations.
5. Capital Improvements
Although not immediately deductible, capital improvements can have long-term benefits when it comes to taxes.
Capital improvements are improvements that add value to your home or extend its useful life, such as a new roof or upgraded kitchen.
While you won’t see an immediate tax advantage, these improvements can reduce the amount of capital gains tax you owe when you eventually sell your home.
By adding the costs of capital improvements to your home’s tax basis, you effectively lower the taxable gain from the sale.
So, make sure you save those home repair invoices. When you sell your home, you will need them!
Conclusion: 5 Tax Benefits for Your Home Improvements
In summary, while most home improvements are not tax-deductible, understanding the specific instances where tax credits or deductions are available can potentially save you money.
Whether it’s through energy-efficient upgrades, renewable energy installations, mortgage interest deductions, home office deductions, medical reasons, or capital improvements, exploring these avenues can help you maximize your tax benefits while enhancing your living space.
Remember to consult with a tax professional or utilize tax software to ensure compliance and accurate calculations.
Happy improving and tax-saving!
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