March 15th, 2016 6:02 AM by Jackie A. Graves, President
We know. It’s tax season and you’re knee-deep in paperwork and
you already dipped into your savings to remodel your home last year and
now you have to pay more money to the IRS and you just want it all to end
Wait, back the truck up. Did
you say you remodeled your home? You might be in luck. If you’ve made the right
kind of renovations, you could deduct the expense or even get a tax
credit—which promises to significantly lower (or even eliminate) the
amount you owe to the IRS. And if you’re planning to renovate—or even to
buy a home that could require renovations—you’d do well to approach it so you
can reap these rewards, too.
Here are four big renovations that can lower
your tax bill.
Under the Residential
Energy Efficient Property Credit, homeowners can receive a tax
credit for alternative energy equipment installed in your home.
(Yes, that’s a tax credit,
which is directly subtracted from the amount you owe, as opposed to a
deduction, which simply lowers your taxable income.)
Homeowners receive credit
for up to 30% of the cost of purchasing and installing “alternative energy
equipment,” defined by the IRS as solar electric systems, solar water heaters,
wind turbines, or geothermal heat pumps. You can also receive credits for
residential fuel cells, capped at $500 per kilowatt of energy capacity.
Granted, these are all
expensive additions—a wind turbine capable of powering your entire property costs
$30,000 on average—but they pay back big, come tax time.
Here’s a sneaky trick to get a
small tax benefit from home improvements that might not otherwise be
deductible: Make renovations immediately after purchase and take out a larger mortgage to cover the added expense.
Your mortgage interest is
deductible, and the IRS doesn’t discriminate based on whether some of the funds
went toward a remodel. You can also decide to renovate later and still receive
the same benefits: A home equity line of
credit and home improvement loans are also
This may not be a huge
advantage, though, especially if you could have paid for the renovations
outright. It’s still a loan, and you’re paying interest. But if you would
need to borrow money to afford renovations anyway, this way allows you
to save some of that cash on your tax return.
If you are or a family member
is disabled or affected by a serious illness, medically necessary home
improvements can be deducted from your income.
There’s a wide variety of
potential tax savings, depending on your condition and which
improvements you make, but some common expenses are installing a
wheelchair ramp, widening doorways, lowering the cabinets, and grading the
ground to provide easier access.
Medical deductions require
itemizing through Schedule A, and chances
are taking the standard deduction will still mean a bigger tax
return unless your medical expenses topped 10% of your adjusted gross
income. But major home improvements are a great opportunity to meet that
milestone—just check with your doctor and tax accountant to ensure they’re
Coughing up tens of thousands
of dollars for high-cost energy additions such as solar water heaters
and heat pumps isn’t the only way to take advantage of Uncle Sam’s green tax
credit. You can do simple improvements, too: Swapping in energy-efficient
doors, windows, or skylights qualifies for the credit of up to $500.
“The energy property
credits are some of the best,” says Crystal Stranger, the
tax operations director at 1st Tax Services. Unlike energy generator
credits or medically required alterations, it is easy for most homeowners
to qualify for several credits after a normal year’s worth of
improvements—without spending a ton of money.
Just make sure you pay close
attention to the qualifications. New additions must be Energy Star–rated and
installed in your principal residence, meaning rental improvements are,
unfortunately, beneficial only to the world and not your tax bill.
This benefit isn’t just for
your fancy new windows and doors. Here are a few more exciting examples of
energy-efficient changes that pay back on your tax return. (Remember, the
cumulative total of these upgrades can be no more than $500 per year.)
This tax credit is as good a
reason as any to actively seek out energy-efficient changes whenever
you’re making improvements to your house. Choosing to pay slightly more
for an Energy Star window can end up cheaper in the long run—and all you have
to do is ask.
By Jamie Wieben - To view the original article click here