Generally, renovations on a home are not expenses that can be readily deducted from your taxes. Usually the expense of renovations is deducted from your taxable profit total when you sell your house. But there are certain renovations that can lead to tax write-offs. Here are some renovations tips that will improve your standard of living while paying for themselves.
1. Roll the Cost of Renovations into your Mortgage
You can minimize your taxes if you plan to make renovations when you first purchase your home. Here’s how you do it. When you finance your mortgage, take out additional funds and use those to make renovations. This way the additional money for renovations is added to the expense of your home. As part of the mortgage, the interest on the total amount (including the amount to renovate) is part of your mortgage deduction. Reach out to a financial guru like Mark Weinberger on exactly how this can be accomplished to greater advantage.
2. Renovations That are Also Medical Expenses
If the renovations you are going to make to your home can also be considered medical expenses they can be written off.
For example, if your renovations include such things as modified bathrooms, widened doorways and halls, handrails, and exit ramps, they are improvements that are deductible because they serve to meet special medical needs. But the deductions must be done judiciously, and have obvious medical purposes. If the renovations are more architectural or aesthetic in purpose they cannot be deducted.
In other words, if the improvement makes the residence wheelchair accessible, it will qualify. If you’re adding an extra room to the house, it will not qualify. If the renovation increase the home’s value it is not a medical expense and not deductible.
3. Energy-Related Renovations
The government offers energy tax credits if you install qualifying energy generating systems. This is another area where your renovation can be deducted from your taxes.
For example, if you choose to install geothermal heat pumps, solar water heaters or panels, fuel cells, or small wind turbines into your new or already existing home up through the end of December 2016, you can receive a one-time federal tax credit of 30% of their cost.
With the exception of the fuel cells that can only qualify when installed in your primary residence, you can receive tax credits when you install these energy generating systems in your second or vacation home as well.
This 30% tax credit applies no matter the cost and it includes labor and installation. But with no maximum limit you could purchase and install $10,000 worth of solar panels and instantly benefit from a $3,000 tax credit – not to mention the future saving your will experience from a lower electric bill.
You do need to remember to take the tax credit in the year you install the item. And it will also require a Manufacturer Certification Statement to fully qualify. Additional details can be found at Federal Tax Credits for Energy Efficiency.
Even if all your renovations don’t result in immediate tax savings, you can still benefit from tax savings when you sell your home. There are positive gains no matter what the renovation is.