ASK NAT, Tax Professional
QUESTION: What are the available strategies for tax savings on home improvements ?
ANSWER: Home improvements can offer various tax savings through credits, deductions, and adjustments to your home’s cost basis. Here are key strategies to consider:
1. Energy-Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit allows homeowners to claim 30% of the cost of qualifying energy-efficient upgrades, with annual limits:
Exterior Doors: Up to $250 per door, capped at $500.
Exterior Windows and Skylights: Up to $600.
Home Energy Audits: Up to $150.
Insulation Materials: Up to $1,200.
Heat Pumps, Water Heaters, Biomass Stoves, or Boilers: Up to $2,000.
These credits are available annually through 2032.
2. Residential Clean Energy Credit
This credit covers 30% of the cost for installing renewable energy systems, such as:
Solar Panels
Solar Water Heaters
Wind Turbines
Geothermal Heat Pumps
Battery Storage Systems
The credit is available through 2032, with a gradual reduction in percentage starting from 2033.
3. Capital Improvements and Cost Basis Adjustment
Permanent improvements that add value to your home, such as adding a new room or upgrading the kitchen, can increase your home’s cost basis. A higher cost basis reduces potential capital gains tax when you sell the property. It’s essential to maintain detailed records of these expenses.
4. Medically Necessary Home Modifications
If you make home improvements for medical reasons—like installing ramps or modifying bathrooms for accessibility, these costs may be deductible as medical expenses, provided they don’t increase your home’s value.
5. State and Local Incentives
Beyond federal programs, many states and local governments offer additional incentives for energy-efficient home improvements, including rebates, tax credits, or reduced fees. For instance, some areas provide property tax exemptions for homes meeting certain energy standards.
6. Property-Assessed Clean Energy (PACE) Programs
PACE programs allow homeowners to finance energy-efficient improvements through property tax assessments, facilitating immediate upgrades with repayment over time. Availability and terms vary by location.
7. Documentation: Keep thorough records of all home improvement expenses, including receipts and contracts, to substantiate claims.
8. Professional Advice: Tax laws can be complex and subject to change. Consult a tax professional to understand how these strategies apply to your situation.
ASK MICKEY, CPA Are there any tax considerations when selling your home?
