Home improvements can mean tax savings when you sell. This requires some consultation with a professional, but it can result in you saving a good deal on your taxes.
You generally can’t claim property improvements on your taxes annually, but when you sell your home, these improvements can mean tax deductions. You have to know what is considered a repair and what is an improvement. The rental property you own is also subject to tax deductions – repairs and improvements can be deducted as business expenses. Keeping track of all financial records and receipts can result in a significant tax reduction the year you sell a property.
A repair is considered something that maintains the value of your home, such as painting, replacing cracked window glass, and other minor repairs. An improvement is something that materially improves the value of your home. Completely replacing your window with a new, energy efficient one is a definite upgrade. A garage is an improvement. A pool or hot tub is an upgrade. While most repairs don’t qualify as improvements, simultaneous improvement and repair can qualify, so replacing a malfunctioning toilet while remodeling the bathroom can mean savings.
Consulting a professional is the best idea. Good professionals to approach are your tax advisor or an IRS representative. These people can direct you to resources you can use to learn more about property improvement claims. The IRS website at irs.gov also has good information for households.
Tax credits reduce the tax itself, while tax deductions reduce the amount of income on which tax is paid. Either way, it means savings, but it also means you should educate yourself on both, so you have a better idea of what you’re paying for and what kind of money you’re saving.
Energy tax credits can also take away a portion of your taxes. Installing energy-efficient appliances and energy-saving devices like solar panels can mean a tax break for you. Improvements that are directly related to a medical condition may also qualify for a tax exemption.
Keep track of all expenses, receipts, and other information about home purchase, maintenance, repairs, and improvements. Learn about your state’s definition of what it repairs vs. what it repairs. The upgrades are to get the best idea of what you can claim. Ask a tax professional for advice. You may be able to claim more than you think.
