Wednesday, May 20, 2015

At Tax Time, Don’t Lose Sight of Home Improvements

Spring marks the start of both the income tax filing season and home improvement time, but proximity on the calendar isn’t the only thing the two have in common.

Certain types of home improvements can lower your tax bill, or produce a bigger refund to help finance other home projects. Below are some examples, but a word of caution: If you think you quality for any of these benefits, be sure to consult with your tax advisor before filing your return.

Residential energy credit. The cost of installing certain energy-saving items in your main home – including energy-efficient windows and skylights, exterior doors, insulation systems, a furnace, or hot water heater — may qualify you for a special tax credit.

Improvements needed for medical care. If you itemize, you may be able to take a deduction for improvements to your home that are made for medical reasons – widening doorways, adding handrails, sometimes even installing a spa or swimming pool if the main purpose is medical.

Lead-based paint removal. The cost of removing lead-based paint in the course of remodeling or repainting may be tax-deductible.

Points paid for a home improvement loan. You can deduct the cost of points paid on a loan to improve your main home. The deduction can be taken immediately or spread out over the term of the loan.

Capital improvements. Improvements that increase the value of property, lengthen its useful life, or adapt it to a different use (building an addition, converting a basement to a recreation room, or even re-wiring a home, for example) increase the “basis” of the property and can save on taxes at the time of sale.

Home office deductions. Assuming that you run a business out of your home, direct expenses for things done to the home office such as interior painting, paneling, or carpeting are fully deductible. You may even be able to deduct a portion of the expense for home improvements that benefit your entire home, such as exterior painting or installing a new roof.

Rental property. If you make improvements to rental property that you own, you can recover the cost of the expense over the course of time through depreciation. Simple repairs (including such projects as repainting or fixing broken plaster) can usually be taken immediately as deductions against rental income.

As you can see, there are many connections between your property improvements and your tax liability, so don’t forget about these projects when you file your taxes. Keep careful records, share them with your tax preparer, and get all the tax relief that you deserve!