Money savvy homeowners in New York and New Jersey are always looking for ways to save some of their hard-earned cash, especially by reducing their tax bill. But in many situations, understanding your true tax liability can be difficult. For example, can you write off home improvements that you or a contractor complete? To find out that answer, read this helpful guide compiled by Alure Home Improvements.
Potential Home Improvement Tax Deductions
Installing a new HVAC system, repairing a patio, or revamping your bathroom are all valuable projects that can increase the worth of your home. However, under the United States’ current federal tax code, these types of home improvement projects are not usually tax deductible in the year they are completed. However, if you keep records of these projects and their cost, you may be able to save money on taxes when you sell your home in the future.
When a homeowner sells their property for a profit, they can exclude up to $250,000 of the gain from their taxes or up to $500,000 if married and filing jointly. Gains are determined by using the total financial investment in the property as the basis. So, if you keep track of all the qualified home improvements you make, you can increase the basis of your home and lower your taxable gain when you sell. More information can be found on the IRS website.
What Tax Deductions for Home Improvements Are Allowed?
Most home improvements are not tax deductible, however, there are two types of renovation projects that may qualify a homeowner for a tax break.
Energy Efficient Upgrades
Installing energy efficient equipment including solar panels, solar water heaters, geothermal heat pumps, small wind turbines, or fuel cell property can potentially earn you a tax credit. If you do qualify for a tax credit, you will receive a reduction in your tax bill that is equal in value to the credit. The value of your tax credit will be equal to a percentage of the total cost of your energy efficient upgrade based on the following general guidelines published by the IRS:
- In the case of property placed in service after December 31, 2016, and before January 1, 2020, 30%.
- In the case of property placed in service after December 31, 2019, and before January 1, 2023, 26%.
- In the case of property placed in service after December 31, 2022, and before January 1, 2024, 22%.
- Fuel cell property is limited to $500 per half kilowatt of power capacity and must be installed at your primary residence.
Up-to-date information on these tax credits can be found on the IRS website.
Renovations for Medical Purposes
If you have made substantial upgrades to your home to aid a disabled person, you may qualify for a tax deduction. Some home improvements that may qualify include, ramps, widened doorways or hallways for wheelchair access, bathroom or stairwell modifications, and more. However, medical expenses can only be deducted if they are paid out-of-pocket and exceed a certain percentage of your adjusted gross income. You can learn more about medical expense tax deductions on the IRS website.
If you have more questions about your tax liability, contact a trusted tax accountant. And if you’re looking for an exceptional company to perform renovations at your home, contact Alure Home Improvements!