Home improvements can mean tax savings when you sell. This requires some consultation with a professional, but can result in a tidy sum being saved on your taxes.
You can’t usually claim property improvements on your taxes on a yearly basis, but when you sell your house, these improvements can mean tax deductions. You have to know what is considered a repair and what is an improvement. Rental property that you own is subject to tax deductions as well – repairs and improvements can be deducted as a business expense. Keeping track of all financial records and receipts can result in a significant tax reduction the year you sell a property.
A repair is considered something that maintains your home’s value, like painting, replacing a cracked window pane and other minor repairs. An improvement is something that materially improves your home’s value. Completely replacing your window with a new, energy-efficient one is a definite improvement. A garage is an improvement. A pool or hottub is an improvement. While most repairs don’t qualify as improvement, simultaneous improvement and repair may qualify, so replacing a malfunctioning toilet while you remodel the bathroom may well mean savings.
Consulting a professional is the best idea. Good pros to approach are your tax consultant or an IRS representative. These people can point you to resources that you can use to find more about property improvement claims. The IRS website at irs.gov also has some good information for the home
Tax credits reduce tax itself, whereas tax deductions reduce the amount of income upon which tax is payable. Either way, it means savings, but it also means that you should educate yourself on both, so you have a better idea of just what you are paying and what kind of money you’re saving.
Energy tax credits can also take a chunk out of your taxes. Installing energy-efficient appliances and energy saving devices like solar panels may mean a tax break for you. Improvements that are directly related to a medical condition may also qualify for a tax break.