Can you deduct home renovations on taxes?

Can You Deduct Home Improvements on Your Taxes?

Home improvements can be an expensive but necessary expense for homeowners. The cost of improvements such as adding a new room, replacing your roof, or installing central air conditioning can quickly add up. Many homeowners are wondering if they can deduct home renovations from their taxes as tax season approaches. In this blog post, we’ll look at whether you can deduct home improvements from your taxes.

What Home Improvements Are Tax Deductible?

Home renovations are considered capital improvements by the IRS, which means they add value to your home and extend its useful life. You can’t deduct the cost of a capital improvement, such as installing central air conditioning or replacing the roof, in the year you spend the money. You can, however, deduct those expenses from your taxes when you sell your home.

How to Deduct Home Improvements

When you sell your home, you must determine whether you made a profit or a loss. The difference between the sale price of your home and its adjusted basis is your gain. Your adjusted basis is the original cost of your home plus the cost of any capital improvements you’ve made, less any depreciation or other deductions.

To deduct home improvements, you must keep meticulous records of your expenses. Keep receipts and invoices for all home improvements, and make a note of the date and cost of the improvement. When you sell your home, you can use those expenses to increase your adjusted basis, lowering your gain and lowering your taxes.

Additional Tax Considerations

It’s important to note that not all home improvements qualify as capital improvements. Repairs and maintenance, such as replacing a broken window or repairing a leaky faucet, are not deductible. Furthermore, if you pay for your home renovations with a home equity loan or line of credit, the interest you pay on that loan may be deductible as mortgage interest.

To summarize, while you cannot deduct home improvements from your taxes in the year you make them, you can use those expenses to reduce your taxes when you sell your home. You can maximize your tax savings and make the most of your home renovations by keeping careful records of your expenses and understanding how to calculate your adjusted basis. As always, consult with a tax professional for specific advice regarding your situation.