Tax Credits and Deductions and Your Home Improvement Projects
Homeowners, here in the Greater Philadelphia Area, have more opportunities than they realize to get tax benefits from their home improvement projects. Some may require you to itemize, but others don’t so check with a tax expert when thinking about a project in order to determine how to get the most out of your renovations and not leave money on the table.
Energy tax credits
Energy tax credits do not require itemizing on your taxes and can be worth from 10% to 30% of installation costs. At M&K Renovations, we try to always point out to our clients when they can incorporate energy-saving fixtures and appliances into their projects, many of which offer tax credits.
Items that could provide a 10% tax credit when energy-efficient models are installed include:
- Water heaters
- Electric heat pumps
- Qualified oil furnaces
- Qualified oil hot water boilers
- Some air circulating fans and central air conditioners
- Insulation that reduces heat loss or gains
- Exterior windows, skylights, storm windows, and doors
- Metal and asphalt roofs that reduce heat loss or gain
Items that could provide up to a 30% tax credit for 2021 taxes:
- Solar electric
- Solar water heating
- Fuel cells that generate a minimum of 0.5 kW
- Small wind energy
- Geothermal heat pump
Home office and rental property improvements
Your home office renovation can be deducted as a business expense and depreciated over several years. Even a new coat of paint can be deducted. This is for any area that is intended exclusively for business use. The work area is not limited to an office only but could include a workshop, such as an art studio, a sound studio for audio/visual projects, or a woodshop.
Rental property improvements, even regular upkeep such as repairing damaged cabinets, can be depreciated. Repairs can be claimed in the year they are completed, while renovations such as a new bathroom or kitchen would be depreciated over several years since they add value to the property.
Medically necessary renovations
If you need to make renovations on your home for medical reasons, these renovations and improvements may be deductible through the medical expense deduction. These include things like entrance ramps, lower cabinets, redesigned bathrooms for handicap access, wider doors for wheelchair access, etc. If the improvements are medically necessary, they are deductible.
Rolling improvements into your mortgage
Some new home buyers purchase houses intending to renovate, so they include the cost of renovation in the mortgage that they take out on the home. So rather than taking out a separate loan, the interest on your renovations is deducted from your taxes as part of the mortgage interest deduction.
Itemizing on your taxes may pay off
As with any of the tax credits or deductions already mentioned, it’s important to check with a tax advisor to see how much you will be able to save in your particular situation. Knowing ahead of time will help ensure that you save all the necessary paperwork to make it easy to deduct or take available credits.
Some other renovations can be deducted if you itemize on your taxes. Since the current standard deduction is quite generous, it may not be worth it to itemize. But it may be worth doing the calculation, especially if you’ve done major renovations, suffered significant property damage from fire, accident, or federally-declared natural disaster, or have experienced theft.
Of course, we’re not tax experts, we’re general contractors. But there are often opportunities for homeowners to recoup a portion of the cost of their renovations on their taxes. It’s worth it to look into what tax benefits are available to you as you plan your project. Contact us at (610) 353-2895 so we can get you started on your renovation, repair, or remodeling project today.
Jeff’s experience in Operations Management and Organizational Leadership in the mortgage, manufacturing, and finance industries allows him to bring 15+ years of corporate expertise to the M&K team. His motto is: “Quality is paramount – Process should be simple.