Your home can be a blessing when it comes to taxes. There are countless tax benefits to owning a property, which can clearly help offset some of the costs of property ownership and decrease some of the burdens that affect most home buyers.
So it stands to reason that many people wonder and worry about whether or not the changes they make to their homes might be tax deductible, and there is some good news – though you may not be able to deduct on this year’s taxes necessarily, you can deduct on some future taxes.
Keep Track of Your Installations and Improvements
Homes cost money to maintain. You’ll find that you regularly need to fix or change something inside of the home, and these costs can add up considerably over time.
True repairs – such as fixing a leaky faucet or repairing a small missing spot on a roof – are not considered tax deductible. This is considered to be basic repair and maintenance, and a standard part of home ownership.
But improvements – loosely defined as changes you make to the home that make your home better – ARE tax deductible. You simply have to deduct them when you sell your home.
Capital Improvements and Tax Basis
When you sell your property, you’re expected to pay taxes on any profit over $250,000 (or $500,000 for married couples). To calculate your profit, you take the sale price of the property, and deduct everything you’ve ever paid for with the house in order to determine your profit. This includes:
- Original purchase price
That last bullet that makes it very important for those who expect to profit from the sale of their home to keep track of all the costs they accrue improving their home. The more you spend in improvements, the more you can deduct when you sell your home to reduce tax on profits.
“Improvements” is also not limited to new additions. While fixing a small broken part of a roof may be considered a repair, replacing a roof may be considered an improvement under the law, because new roofs are generally better designed and can add to the look of your property in a way that adds to its value. So it’s a good idea to keep track of repairs as well, if these repairs replace something in your house with something that is better designed and would add value to your home.
What Can You Deduct This Year?
There are actually a few installations that you can deduct this year. The vast majority of these are home improvements that impact energy consumption, such as the installation of solar panels. If you have made any energy improvements to your home recently, check to see if they qualify for energy deductions.
Do you plan on making any home improvements this year? Tell us in the comments below.