Monday, November 18, 2019 / by Burt Horwitz
Tax Breaks - Home Renovation Costs
The cost for a home improvement project may be tax deductible.
Home owners across the country spend about $425 billion a year on everything from new roofs to redone kitchens. Aside from the enjoyment of a renovated house, some owners may also qualify for a tax break.
And that’s a good thing since Americans are shelling out more than ever on home renovations. That $425 billion in spending represents a 53% jump from a decade ago, according to a March report from the Harvard Joint Center for Housing Studies.
The increase has been partly driven by the aging of America’s housing stock, with owners upgrading their older homes, as well as more renovations on investment properties. But knowing when and how to claim a tax benefit isn’t always easy. The biggest tax breaks are enjoyed by owners who work from home and can claim a home office deduction – as well as deductions for improvements to their offices or homes – and rental property owners, experts say.
Home office repairs and renovations
Business owners who work from a dedicated home office – meaning it’s not used for any other purpose besides business – can deduct repairs made to their office in the year they are made. Bigger renovations, which affect the long-term value of the home, can be depreciated over time.
Capital improvements to your home
Regular homeowners, on the other hand, can’t deduct ordinary repairs, like a leaky faucet or broken light fixture. But renovations that are considered capital improvements – or upgrades that substantially add to the value of a home – may provide a longer-term benefits.
That matters when you sell your house because it could lower your capital gains tax from the sale, although it will only affect homeowners whose homes have steeply risen in value.
In other words, unless your profit is more than $500,000 for a married couple or $250,000 for a single homeowner, the step-up in cost basis won’t make an impact because anything smaller than that is exempt from capital gains taxes.
Homeowners may also get a tax break for energy-efficient upgrades through a number of programs, such as the federal Residential Renewable Energy Tax Credit. This credit amounts to 30% of the cost of alternative energy equipment, such as solar panels or a solar water heater, that is installed before the end of December 2019.
States and cities may also have their own tax incentives for homeowners who undertake energy-efficient upgrades or repairs.