Whether you're working with a tax preparer or you're going it alone on filing your tax return, deductions are important for lowering your taxable income. Less income to be taxed means paying less in taxes when Uncle Sam comes to collect.
Taxpayers are looking high and low for any ways to claim deductions legally. While there are a myriad of them available under the IRS tax code, one place many homeowners turn is to their own homes to find those tax breaks.
This brings us to the question of deducting the costs of home repairs and improvements that were spent throughout the course of the tax year. Is this even a possibility? Home improvement projects can be pretty costly depending on what you have fixed, installed, added, or upgraded and it would be great to have those expenses claimed as a deduction from your income for the year.
What constitutes a home improvement in the eyes of the IRS? It counts as any work completed that could add increased value to the home, making the home more functional, or retrofitting the home in some capacity that increases its functionality beyond what existed prior. These repairs or improvements can be done in any area of the house.
So now you might be thinking to yourself that you made improvements such as these to your home and perhaps you can deduct these expenses on your upcoming return.
Think again. As with just about everything involving the IRS, there are stringent qualifications that must be met in order to benefit. In the case of home improvements and repairs, there are specific criteria limiting your ability to claim these expenses as a deduction.
You can find a tax preparer to walk you through all of the minute details as to which expenses qualify or read ahead as we summarize the ways in which you may or may not be eligible to include your home repair expenditures as deductible.
Home office deduction
Do you work from home and do you conduct that business in a separate area that is used solely for business purposes? If this is the case, and you made improvements or repairs to that part of the home, you are eligible to deduct the full cost incurred for them.
But there are other options for you as well. If you have work performed that improves the entire home at once, you can deduct a percentage of the costs as they apply to the percentage of the home that is used for business purposes alone. Let's say you installed a new compressor for the central air conditioning in your home. That is something that can benefit the whole home, including the portion used for a home office. Therefore, you can deduct part of those costs for that compressor at the percentage that applies to your home office.
Medical expense deduction
Any accountant working with you to file taxes will ask if you paid any money for medical costs over the course of the year. Here is another opportunity for you to claim your home improvements and repairs as tax deductible, because the IRS allows for any such work performed on the home as necessary for medical purposes to be deducted.
That means any expenses paid to install any wheelchair ramps, adjust the height of cabinets or the size of doorways, and any other modifications necessary to account for medical necessity may be claimed at 100% of their amount. Just be sure you can prove that such repairs qualify as medically imperative.
Energy deductions
The government offers tax credits for homes that install different types of equipment designed for generating energy. So if you have solar panels installed on the home or have a solar water heater put in, you can get a credit of up to 30%. Credits are even better than deductions as they apply to lowering your tax bill directly, not to the taxable income.
Good book-keeping
If you expect to claim any of these forms of deductions or credits, you are going to need to have the documentation to prove it. Your tax preparer will want to see this paperwork when you include these expenses on your return, because without it, you could be facing some trouble with the IRS should they decide to audit you.
