Are you planning to remodel or upgrade your home without breaking your bank? Do you think that doing it yourself will lead to a lot of tax deductions? Fortunately, this is usually not the case. However, it is generally possible in a few cases. This article will answer one of the most frequently asked questions among homeowners, ‘when is home remodeling deductible’? So, if you’re confused about whether or not to get a tax break for the money you spend remodeling your house, this article is for you!
Whether your home remodeling is considered deductible or not depends on the type of renovation you’ve made in your house. The case is different for renovating your kitchen than remodeling your home for medical purposes, in which the latter case may be considered deductible.
Let’s discuss this further by explaining the conditions in which home remodeling is deductible!
When is Home Remodeling Deductible?
Generally, expenses of home renovation are not tax-deductible under America’s current law; however, only it is possible only in the following cases:
Claim a Tax Credit for Installing Qualified Energy Generating Systems
You can get tax credits (a dollar-for-dollar reduction of the tax bill) and savings on upgrading your home with energy-efficient and energy-saving appliances. The installation of energy-efficient equipment in your home this year, such as solar panels, solar water heaters, wind turbines, etc., makes you eligible to claim a tax credit next year. Tax credits are also refundable when your credit amount exceeds the amount you owe in federal taxes. This is how it works: If you owe $5,000 income tax and your tax credit is $6,000, an amount of $1,000 will be refunded to you. However, a non-refundable tax credit is limited, reducing your tax liability to 0, which you may carry forward and over to other years.
The tax credit is 30% of the cost of the energy-efficient appliances installed in your home. The tax credits were higher earlier but reduced over the years. In the case of Renewable Energy Tax Credit, energy-saving changes made to your home qualify for the tax credits (26% of the equipment cost), according to IRS.
Home Remodeling for Medical Purposes is Tax Deductible
Tax deductions lessen your overall tax liability. According to law, expenses on medical purposes that exceed 7.5% of your gross income and are paid out-of-pocket qualify as deductible. It means that expenses made out of your health insurance plan do not qualify as tax deductible unless the medical bills are sizable. Therefore, if you remodel your home substantially for medical purposes to aid a patient in your home or install medical equipment, it qualifies as tax deductible. It may include widening doorways or modifying bathrooms for wheelchair access, installing lifts and handrails, or constructing ramps.
Home Remodeling Helps You Save Money on Taxes When You Sell
Although home renovations other than the above reasons do not qualify as deductible now, they can help you save your tax when you sell your property. The gain from taxes is calculated using your basis as the homeowner and the total investment you made, including the price you paid at the time of purchase and the money you spent on any improvements that add value to your property and increase its useful life. Thus, any remodeling in the form of installing a new heating or plumbing system, interior or exterior renovations, insulation or any other landscaping adding value to your home may help you save money on taxes later.
We hope this article has helped you understand the commonly asked question, is home remodeling is deductible. If you’re planning to remodel your kitchen or upgrade your bathrooms, contact the Ultimate Cabinets & Interiors, experts in quality home remodeling services with experience of over over 30 years in the field. Ultimate Cabinets & Interiors offer services throughout Fort Myers, Naples, to Port Charlotte, Florida!