Tuesday , November 29 2022

Tax Time: 4 Home Projects That Might Be Deductible

Tax Time: 4 Home Projects That Might Be Deductible

Did you make any home improvements last year? Some of those upgrades may qualify as a tax write-off. Here’s what you need to know.

For the most part, you cannot deduct home improvements. However, there are exceptions, so it’s good to know which upgrades qualify and which do not.

When carrying out a home project that potentially could be tax-deductible, it’s important to retain accurate records of all the payments and relevant documents. For example, keep copies of any pertinent canceled checks, credit card or bank statements, invoices, and contracts as verification for your deduction.

Before moving forward on a project, be sure you understand the specific deadlines and requirements needed for a deduction. Here’s a list of potentially tax-deductible home projects to get you started.

1. Energy-Efficient Upgrades

Home improvement projects that are energy efficient can qualify for a tax deduction. Tax credit claims can be made for upgrades like energy-efficient doors, windows, insulation, roofing, and skylights.

Other potential upgrades that can net a tax credit of 10 percent of the cost (up to $500) or a set amount between $50 and $300 depending on the project, include central air conditioning, circulating fans, hot water heaters, and air-source heat pumps.

In addition, renewable energy upgrades linked to small wind turbines, solar energy systems, geothermal heat pumps, biomass fuel stoves, and fuel cells might also qualify for a tax credit of 26 percent of the investment cost.

2. Medically Required Home Improvements

Any home upgrades related to medical care, whether for you or another family member living in the home, may also be tax-deductible. Projects like installing ramps or lifts, widening doorways, adding railings, and lowering cabinets are examples of medically necessary upgrades. To take advantage of any tax benefits, you would have to itemize your tax deductions.

Keep in mind that this deductible might be a little tough to qualify for, as you are only allowed to deduct medical costs above 7.5 percent of your AGI. Also, if the upgrade increases your home’s value, it must be prorated. The deduction only pertains to the medical costs.

3. Home Projects That Boost Resale Value

Did you know that you can deduct home projects made to increase the resale value of your home? The catch is that it can only be claimed when you sell the home. However, if you fund the project using your Home Equity Line of Credit (HELOC), then you can deduct any interest accrued on the loan if you qualify for itemization. If not, the improvements may still benefit you tax-wise since the cost of the upgrades will be added to the home’s basis, which could lessen any capital gains taxes when you go to sell your home.

4. Home Office Improvements — If You’re Self-Employed

If you’re self-employed and primarily work out of your home, then you might be able to write off upgrades to your home office. In order to qualify for the deduction, your home office must be your principal place of business, and in use regularly and exclusively.

While deducting home office upgrades on your taxes may sound really good — especially when a huge percentage of people are now working remotely — there is an important stipulation to note: Tax deductions do not apply to W2 employees who are working from home.

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