4 home improvement tax deductions you may not know about
It's that time of year again, the time when everyone looks back on their income and expenses trying to find places where they can save money with Uncle Sam. If you're prepare your personal income tax, I imagine you're looking for any and all tax deductions to decrease the amount you owe to the IRS, or dare I say, even increase your tax refund. Well, you may not have to look any further than your most valuable asset: your home or rental property.
The truth is there are home improvement tax deductions that people don't know about or don't know to ask their accountant about. Whether they apply to you is very simple and can be answered in one easy question: Is the property your principal residence or is it a rental property?
Keep these home improvement tax deductions in mind when filing your taxes this year:
Home renovations and repairs. The option to deduct home improvements depends on whether the property is your personal residence or a rental property. According to RealEstate.com you can't deduct home repairs and renovations to a personal property per the IRS.
However, home repairs for a rental property can be deducted in the year they were incurred and home renovations can also be deducted, just not all at once. Expenses for the renovation or improvement of your rental properties have to be recovered over time through depreciation and amortization calculations.
Depreciation in the value of your home. The IRS does not allow homeowners to claim depreciation on their personal residence while they are still living there. However homeowners can get a capital gains tax exemption on the first $250,000 of profit when the home is sold, though of course certain conditions apply.
The depreciation in the value of a rental property can be a tax deduction - over time. If you buy a home for $500,000, you can't deduct the total cost in the first year, but you can stagger the tax deductions throughout the expected useful life of the property, which is currently 27.5 years according to the IRS.
The interest on your mortgage. Unfortunately homeowners cannot deduct the interest paid on their mortgage, even though it is probably the biggest expense that comes with buying a home (after the monthly mortgage payment, of course). However, according to RealEstate.com homeowners can deduct the interest accrued home equity and home improvement loans if the debt is on the same residence as the renovations and if the total value is $100,000 or less (that's the mortgage amount, not the interest).
Extra costs and expenses that come with a home. There are several one-time and reoccurring monthly expenses that come with home ownership. For the most part these expenses - such as insurance premiums on a personal residence, closing or settlement costs, and appraisal costs - cannot be deducted on your taxes. However, you can deduct penalties for the prepayment of mortgages and fees for late payments.
That wasn't so painful after all, huh? Your largest deductions may be right there. Take some time to review the home improvement related expenses for huge savings on your tax bill and cash in where you can.