With the tax deadline looming, I thought it would be good to remind you what you can itemize on your returns, and what you should consider if you're planning to sell your house this year. While many home improvements can't be used for deductions in the year you spend the money, those expenses can help to reduce your taxes in the year you sell your house.
Homeowners are able to claim their home mortgage interest payments, their real estate taxes, and their mortgage points each year, but there are a number of other things that can be deducted as well.
If you have refinanced your home and taken out a second mortgage or equity loan in order to implement some home improvements, all or some portion of the points can be deducted in the current tax year. And interest on home improvement loans is fully deductible up to $100,000.
If you have suffered any accidental losses from incidents such as fire, flood, storm, or theft that exceeds 10 percent of your adjusted gross income, that can be considered a tax-deductible expense as well.
For those who work from home, a portion of your home insurance, home repairs, mortgage interest, property taxes, and utilities can be deducted as business expenses. However, the business portion of the home must be regularly and exclusively used for business, where you meet clients, or be a separate structure, unattached to the main house.
If you have a second home and you rent it out for 14 days or more per year, it is considered an income property, and you are able to deduct your mortgage interest and property taxes. And for those who have moved more than 50 miles for a new job, you may be able to qualify for a residential moving cost deduction. This applies to people who are self-employed and those employed by another company.
Increasing the energy efficiency of your home may also qualify you for tax credits from federal, state, and local governments. If you've installed new central air conditioning, water heaters, insulation, windows, doors, skylights, or other energy-saving devices, while these may not be considered for deductions, you may consider looking into what tax credits are available.
Any home improvements that are meant to help a person in a wheelchair or with a disability can also be used for tax deductions if they are itemized and cost more than 10 percent of your adjusted gross annual income. This includes wheelchair accessible ramps and widened doorways, modified electrical outlets and cabinets, railings, lifts, grab bars, and handrails.
While general home improvements cannot be used as deductions in the current year, they can be considered capital improvements which can help you with your taxes when you sell your home. This is especially advantageous for those who are restoring a vintage home. For instance, although you can't deduct replacing the roof, furnace, windows, gutters, and doors on your annual income tax, you can claim them when you sell your home.
Any home improvement that adds to the value of your home, adapts it to new uses or prolongs the life of the home can qualify as a tax deduction after the home is sold. So, if you're adding on a new bedroom, bathroom, garage, or porch, or if you're installing a new driveway, landscaping, fence, or swimming pool, or if you are modernizing the kitchen, updating the plumbing or electrical, or improving the home in other ways, be sure to keep track of those expenses for when you sell your house.
Please be aware that I am not an accountant. While I do want to make you aware of the possibilities, you should always consult with a professional accountant to see what tax breaks are available to you.
Sarasota Area Real Estate Specialist