Home Improvements and Your Taxes

Spring is finally here! This is the time of year that most homeowners are thinking about getting started on those remodeling projects to spruce up our home and yard. Do you have a remodeling project in mind? Depending on the updates, you may be able to get a tax break.

To qualify for a tax credit your project must be home improvements. If your project is a home repair, there is usually no tax benefits. Sometimes it can be tough to tell the difference between a repair and an improvement.

Home improvements. The IRS defines home improvements as a project that adds value or extends the life of your home. For example: a new roof is an improvement because it extends the life of your home. Whereas, a new kitchen, a new deck, or a brand new room extension are improvements that add value to your home.

Home repairs. Repairs simply keep your home in good working order. For example: repairs may include repairing roof shingles, or painting on the inside or outside of your home.

Selling your home. You can get tax benefits by adding the cost of your home improvements to your original cost basis. That’s the amount you first paid for the home. When you sell, a higher cost basis means a smaller capital gain. And generally you’ll only pay tax on a capital gain greater than $500,000 ($250,000 for singles). So, the smaller your capital gain, the less likely you are to owe tax when you sell.

For this reason, it’s important to save bills and receipts for any projects that may qualify as improvements. Include notes that describe the related home improvement. You may need to keep these receipts for years until you sell your home. But when you do, these updates could be the key to reducing a possible tax bill.

If you need assistance deciding if your project is a repair or an improvement, as well as other financial needs, contact our office at (260) 497-9761 to schedule an appointment with our advisors.