When you own your home, there are plenty of ways to improve it and make it more comfortable, functional, and aesthetically pleasing. However, unless you have a lot of money sitting around that you don’t know what to do with, these improvements won’t come cheap. They could end up costing you several thousand dollars. Fortunately, the IRS understands that upgrading your home is a beneficial investment in yourself as a homeowner. That’s why they offer tax breaks on qualifying home improvements. Read on to learn which home improvement blog qualifies for a tax deduction and how much you can save by investing in home upgrades this year.
Home Improvement Basics
Before we get into what types of home improvements are tax deductible, we need to discuss some basic home improvement terms and concepts. This will help you navigate the rest of the article more easily.
Cost basis – This is the amount you paid for the property, including sales tax, labour costs, and any other expenses that came with the purchase. It’s also used to calculate gain or loss on the sale of the property.
Depreciation – This is the decrease in the value of an asset over time. In the case of real estate, it refers to the value of the property decreasing as time passes. This is due to wear and tear, natural deterioration, and other external factors.
Internal Revenue Code – This refers to the federal tax laws that govern the process of filing taxes, claiming deductions, and paying federal income tax. The basis for original home construction – This is the cost basis for the original structure of your home.
home-repair tax deductions
If you’re going to make improvements to a portion of your home, you’ll need to figure out if it counts as a repair or a replacement. This will determine if you can deduct the cost from your taxes.
Repairs – If your original structure is still intact, but you’re fixing damaged or broken parts, you’re performing a repair. This can include fixing leaky pipes or replacing a broken window. These are tax deductible, but only up to the original cost of the home.
Replacement – Replacing your original structure with a brand new component is a replacement. This includes replacing a roof, windows, or siding with materials of a higher value. If you’re building an addition to your home, this is also considered a replacement.
Resolving a Material Material Loss
Any time you experience a material loss while making repairs or improvements to your home, you can apply that loss against the cost of the repair. This is called a material loss, and it can save you a significant amount of money on your taxes. If a storm causes significant damage to your roof, you can deduct the cost of repairs from your taxes. A couple of things to remember about material losses:
– Your loss must exceed 10% of the cost of your home.
– Your loss must be due to flooding, theft, vandalism, or a similar incident.
Rebuilding or Renovating
If you’re planning on tearing down and rebuilding an entire room in your house, or you’re planning on renovating multiple rooms, you may be able to write off the entire cost of the project. If you’re renovating to stay in the same place, you’ll only be able to write off the cost of materials. If you decide to go this route, it’s important to understand that you’ll have to depreciate your investment as an improvement over time. You’ll want to consult a tax professional for help with this process.
Repairs That Benefit a Taxable Property
If you’re making repairs to your home that will also benefit your other properties, those repairs may be tax deductible. This includes improvements like installing a better water filtration system that will provide clean water to all of your properties. You’ll have to calculate the value of the improvements about the value of your other properties, but the repairs will be tax deductible. The same rules apply to repairs made to improve the functionality of your homes such as installing a wheelchair ramp, widening door jambs, or installing a ramp for strollers or wheelchairs. These upgrades will also be tax deductible.