You may be eligible for a tax break if you made home improvements last year. As you prepare your taxes, keep in mind these credits and deductions.
#1 – HOME IMPROVEMENT LOANS
While you are probably already aware that your property taxes are usually tax-deductible, you can also deduct the interest you pay on a home improvement loan. The IRS allows that interest is fully deductible up to $100,000. Also, in most cases, you may deduct the interest on a home equity line of credit (HELOC).
#2 – INCREASING ENERGY EFFICIENCY
Not only do you decrease your home energy costs with ”green” improvements, but federal, state and local governments offer tax credits. EnergyStar.gov lists the federal tax credits; some examples are:
- Biomass stoves: About $300 credit for units with a thermal efficiency rating of 75% or more
- Air source heat pumps: $300 credit
- Central air conditioning: $300 credit
- Gas, propane, or oil hot water boilers: $150 credit
- Gas, propane, or oil furnaces and fans: $150 credit for furnace, $50 for main air-circulating fan
- Insulation: Up to $500 or 10% of the cost, whichever is lower
- Roofs: 10% of the cost up to $500
- Non-solar water heaters: $300 credit
- Solar water heaters: 30% of the equipment and installation costs with no cap on amount
- Windows, doors, and skylights: 10% of the cost up to $200 for windows and skylights; up to $500 for doors
- Geothermal heat pumps: Up to 30% of equipment and installation costs
- Small residential wind turbines: 30% credit
- Residential fuel cells: 30% of the equipment and installation costs with no cap
#3 – MEDICAL HOME IMPROVEMENTS
If you, your spouse, or your dependents are in a wheelchair or have a disability, improvements may qualify for tax deductions if they are itemized and cost more than 10% of your adjusted gross annual income. An exemption allows people 65 and older to deduct total medical expenses exceeding 7.5% of their adjusted gross income through the tax year. Examples of medical expenses include:
- Making the home wheelchair accessible with entrance and exit ramps and widened doorways
- Grading the ground for entrances
- Moving or modifying electrical outlets
- Lowering or modifying kitchen cabinets and appliances
- Installing railings and lifts
- Adding grab bars and handrails
#4 – CAPITAL IMPROVEMENTS
If you were preparing to sell your home, some repairs can qualify as capital improvements, such as replacing the roof, the furnace or HVAC system, windows, gutters, and doors.
Do you plan to finance home improvements in upcoming year? While cash is the “thriftiest” means of paying for home improvements since interest and fees are not involved, it’s not always possible to finance emergency repairs or renovations without assistance. Consider these methods to help get the job done:
- Mortgage Refinancing: If you can qualify for a lower interest rate and all the numbers figure in your favor, refinancing may be a wise option. Qualifying and the rate that is offered are dependent on your credit standing.
- Federal Housing Administration Loans: You may qualify for one of two types of loans provided by the FHA. The 203K loan is usually used to buy a home that needs extensive repairs, while the Title 1 loan provides up to $25,000 and is not contingent on the homeowner’s equity.
- Credit Cards: Small home improvements may be financed by using credit cards. Some homeowners try to get the most benefits by using a rewards card or 0% introductory APR credit card. Just remember that you should have a plan to pay off the card in full as soon as possible or you’ll just build up debt.
When planning home improvements, have a plan to pay back any financing that you acquire so you don’t end up with a beautiful renovation and an ugly debt.