Filing your taxes is probably not an event that any of us particularly look forward to, but knowing that there is a possibility of a tax credit could offer a silver lining. If you’re thinking about making upgrades to your home in hopes of recouping tax dollars, here are a few items to consider:
Repairs and Improvements are Two Different Things
The IRS defines “repair” as anything that you do to your home to keep it in a good condition, whereas an “improvement” is something that you do to your home that increases it resale value or improves your home’s usefulness. For example, replacing your leaking roof may be considered a repair, whereas upgrading to solar panels may be considered an improvement.
Increase Your Adjusted Cost Basis
If you make a profit when you sell your home, that profit is referred to as capital gains, which is taxable. However, if you increase your adjusted cost basis, which refers to what you paid for the home, plus any costs incurred during the home improvement process, then you’ll show a lower profit, which will result in a lower capital gains tax. Make sure to keep all of your receipts and pertinent paperwork for reference when it’s time to sell.
When you make renovations to your home for medical purposes, such as adding ramps, support bars, or widening doorways, you may be able to deduct those costs on your taxes. Speak to your professional tax preparer regarding any limitations.
When in doubt, it’s always best to speak to your tax preparer. Tax laws change every year, and a professional tax preparer will know exactly what you can deduct. As a rule of thumb, keep all of your receipts and paperwork so that you have everything you need in order to maximize your deductions.
Source: Integrity Home Mortgage Corporation, “Home Upgrades and Your Taxes: What You Need to Know”