Homeowners: What to Know Before End-of-Year Tax Time
With today’s low mortgage rates, many homeowners are refinancing their mortgages to get a lower interest rate or get cash out. A cash-out refinance is an opportunity to withdraw your home’s equity to improve your home, pay down other debt, or finance another need. Home repair and renovation projects are a good way to reinvest in your property and potentially increase its resale value. This year, Americans are on track to spend $425 billion on home improvement projects. You may even be able to claim tax benefits on some home upgrades.
Home office installation or renovation
Whether you work from home as a contract worker or own your own business with a dedicated home office, you can deduct some repairs you make to your home office. Zillow Economist Jeff Tucker said, “you’ll have the most tax benefits if you have a home business. Then, the cost of improvements to make to your home office is deductible.”
Capital home improvements
Fixing a leaky pipe or adding new light fixtures are minor improvements. However, an upgrade that adds substantial value to your home or a “capital improvement” could qualify for a tax benefit. For example, if you bought your home for $200,000 and spent $50,000 on a new roof, you could now be able to sell your home for $250,000. A married couple filing jointly can exclude $500,000 of gains from a sale and a single person filing can exclude $250,000. So, unless your profit is greater than $500,000 (married) / $250,000 (single) any smaller improvement is exempt from capital gains taxes.
When you install a home solar system you may be eligible for a tax credit through the federal Residential Renewable Energy Tax Credit. This credit equals up to 30% of the cost of the installation and can include upgrades like a solar panel or a solar water heater. If you install your solar system before the end of December 2019, you can count it toward this year’s taxes. Some specific cities and states offer their own tax incentives for making energy-efficient upgrades. Consult your tax professional if you plan on making any improvements to your home.
Renovating investment properties
If you own an investment property like a rental home, any necessary repairs you make to the home are deductible in the year they occur. Since the implementation of the Tax Cuts and Jobs Act, many landlords can take even bigger deductions. Need to upgrade your rental’s furniture? Want to pressure wash your rental’s exterior? Any changes intended to boost your rental income are eligible for a tax deduction, just like a business can write expenses off.
Income tax season is right around the corner! Working with a tax professional can help you claim all your eligible deductions.
Sources: USA Today