Remodeling Tax Tips
One of the challenges of remodeling is affording that beautiful new space. Many of our clients are financially savvy though, and are paying for their remodel with money they’ve saved for that specific purpose. We do get questions around what tax advantages one can utilize after their remodel, and while we always recommend you discuss your situation with your tax professional, we can offer the following suggestions as avenues to investigate:
- Medical Expenses – if the improvements you’re doing are due to medical needs, ramps, handrails, bathroom modifications, etc. can likely be deducted from your taxes.
- Energy-Efficient Improvements – a new roof, windows, and other energy efficient appliances, may meet the IRS criteria for a deduction.
- Sales Tax – most of us take a sales tax deduction each year, but don’t forget to include the sales tax you paid on your remodel for the year. If your remodels spanned more than one calendar year, only deduct what you paid for that year and you can use the residual amount the following year.
- Interest from a Home Loan – if you’ve gotten a loan for your remodel, one of the benefits is deducting the interest from your loan.
- Capital Gains Reduction – while this only applies when you’re ready to sell your home, it’s good information to have. Whatever remodeling you’ve done that increases the value of your home, assuming that value is still present when you’re ready to sell, can reduce your capital gains obligation.
As with all tax related items, keep your receipts and document all of the improvements, so that if an audit ever occurred, you can provide proof of your purchase. When in doubt, check the IRS website.