Owning a home can often feel like a money pit. First, you buy the house, and before you know it, you need to replace a drafty window or a broken garage door and hire a plumber to look at that leaky faucet. Homeownership is terrific in many ways, but sometimes the phrase “house broke” hits a little too close to home. The good news is that there are several tax breaks you may qualify for as a homeowner. Although leaky windows are a huge bummer, your income tax bill doesn’t need to be if you remember these deductions and credits.
4 Home Renovations That Can Lower Your Income Tax Bill
A tax credit is a number directly subtracted from the amount you owe on your taxes, unlike a deduction, which simply lowers your taxable income.
If you invested in solar panels this year, you might be eligible for a tax credit under the Residential Energy Efficient Property Credit.
Homeowners receive credit for things like solar electric and solar water-heating equipment. These home upgrades are good thru 2022. 26% of the equipment cost is eligible for the credit for equipment installed after Dec. 31, 2019, and before Jan. 1, 2023. This percentage will peter out over the next few years, so now is the time to “cash in” on solar!
Thinking of purchasing a “fixer-upper?” If so, you may be pleasantly surprised come tax time. Making significant home renovations immediately after purchase and taking out a larger mortgage to cover it could ease your tax burden via a mortgage interest deduction.
However, how much you can deduct depends on when you got your mortgage. Homeowners with a mortgage that began before Dec. 15, 2017, can deduct interest on loans up to $1 million, while homeowners with mortgages that began after Dec. 15, 2017, can only deduct the interest on the first $750,000. If you opt to itemize your deductions, your mortgage interest and other deductions must add up to more than the standard deduction to be worth your time.
If you or a family member has mobility or other health concerns, renovating your home to accommodate your health and safety may net you a tax deduction. Widening doorways, installing wheelchair ramps, lowering cabinets, and adding handrails are standard “upgrades” that may be tax-deductible.
Unfortunately, these home improvements will need to exceed 7.5% of your adjusted gross income and must be doctor-approved.
A Home Office
If you own your own business and want a dedicated office space in your home, you may be able to revamp an existing room for your business activities and get a tax deduction in the process. To qualify for the home office deduction, you must use the space exclusively for running your business. If you are eligible for this deduction, you can deduct 100% of the cost of improvements you make to your home office.
Additionally, improvements that benefit your entire home are depreciable according to the percentage of home office use. For example, if you use 20% of your home as an office, you may depreciate 20% of the cost of new roofing.
Home Profit Deductions
Another way to reduce your tax burden with home improvements is when it comes time to sell your home. The cost of most home improvements is deductible from the federal taxes you owe on the profit you make selling your home.
Some examples of home improvements include:
- Adding on a new bedroom
- Installing a security system
- Adding fencing
- Getting a new roof
- Installing in-ground sprinklers
How Texas Property Tax Reductions Can Reduce Your Property Tax Bill
No one likes to pay taxes, especially taxes on their homes. In addition to utilizing credits like the Residential Energy Efficient Property Credit and deductions for significant renovations, medical needs, and home office upgrades to lessen income taxes, homeowners should also look at their property tax bills. Property taxes are based on your home’s estimated value, but appraisers often make mistakes that can cost you.
Texas Property Tax Reductions (TXTPR) can help you reduce your property tax burden with our proven track record of success. We have successfully reduced property tax values for over 97.6% of our clients, with an average reduction of $42,302 and an average tax savings of over $1,184.
Contact us here to see how we can help you save.