When tax time rolls around, many homeowners wonder if any of their expensive home improvements from the year are valuable to mention on their returns. In most cases, home improvement costs are not tax deductible, but they are still financially valuable in other ways.
Some common home improvements that generally do not qualify for a tax deduction include:
- Painting the interior or exterior of a home
- Landscaping projects
- Comparable replacements for appliances like refrigerators, washers, and dryers
- Replacing a window, a toilet, or carpet
There are some home improvements that do qualify for certain tax exemptions, though, and it is good to review those in order to be sure to get back what you deserve when you file your taxes.
Homeowners who make improvements to their homes to make them more energy efficient may qualify for specific federal tax credits. Many ENERGY STAR designated products qualify their owners for a tax credit (but not all of them).
Homeowners can get a one-time tax credit for 30% of the cost of qualifying wind turbines, solar panels, solar water heaters, geothermal heat pumps, or fuel cells. All of these energy improvements apply to principal and secondary residences, except for fuel cells where only principal residences qualify. 30% is a pretty hefty credit—be sure to take advantage of it if you have implemented any of energy-efficient solutions in your home.
When a property that you own is lost/destroyed through theft, an accident, or natural disaster, you may qualify for a tax deduction for whatever insurance does not cover on the item (or items). Some examples of casualty loss deductions include fire, vandalism, car accidents, and flooding. Personal belongings, like a necklace that is accidentally thrown in the trash, are not included in this type of tax deduction. Progressive property deterioration, like moth or termite damage, is also not included in this type of deduction. You can read more of the specifics of casualty loss deductions by checking out the official position from the IRS on Casualty, Disaster and Theft Losses.
The IRS does not generally recognize home improvements for tax purposes unless they substantially increase the value of your home from its purchase price. A “major” home improvement will adapt your home to new uses, prolong the life of your home or add material value to it. Some specific of examples of what the IRS considers a major home improvement include:
- Making a home completely handicap accessible
- Adding a room, porch or driveway
- Redoing plumbing or rewiring a home to get it up to the proper code
- Adding a permanent pool
- Upgrading a roof or water heater
- Installing wall-to-wall tile, wood, or carpet flooring
Even in these cases, a homeowner may not have a case for a tax deduction. It is still important to keep accurate records as they will help you avoid paying capital gain taxes later on.
The best time to put money into home improvements is when a home is first purchased because you can roll it into the mortgage, and that interest is tax deductible. If you already have your mortgage in place, do not be discouraged about the lack of tax deductions available for home improvement projects. Smart home improvements will improve the value of your property and that is money you can recoup down the road.
What home improvement projects will you take on in 2015?