Projects That Pay Off at Tax Time

by ritasimpson on October 6, 2013

in Latest News

The only thing certain in life is death and taxes: This all too familiar refrain might be unavoidable, but tax time doesn’t have to be as painful as you think if you are planning on some home improvement projects. 
Improvements can cut your tax bill when you sell your property, but before you get started, it’s important to keep in mind that not all home expenses are treated equally; for example, the IRS considers repairs to be a matter of preserving the home’s original value rather than enhancing its value. Consequently, it’s only improvements (like replacing the roof or adding central air conditioning) that will help decrease your future tax bill (and if you do make a lot of upgrades, make sure to keep your receipts).

If you are concerned about gray areas (such as remodeling the kitchen because some old, failed plumbing created a need for improvements), then you should consult the IRS or your accountant.

To have tax rules work in your favor as a homeowner, upgrades you make must classify as a “capital improvement,” which means the upgrade must last for more than one year, increase the home’s value, prolong its life, or adapt it to new uses.

Some examples of improvements that will pay off at tax time include the following:
• Replacing your roof
• Updating your heating and cooling system
• Re-insulating your home
• Installing new windows
• Replacing exterior doors
Another example of a home improvement project that can make a difference at tax time is energy tax credits from the installation of qualified energy generating systems. Through December 31, 2016, you can receive a federal tax credit of 30 percent of the cost of qualifying geothermal heat pumps, solar water heaters, solar panels, small wind turbines, or fuel cells placed in service for an existing or new construction home.

Always be on the lookout for a variety of available tax credits and take advantage of them when you can to shrink that tax bill.

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