In 2016, if you made any home improvements, you may be eligible for a tax break (savings on a tax payer’s liability through tax deductions, tax break, tax credits, and other incentives). Certain lines of credit which are used for home improvements can also qualify for a tax deduction or credits from good old Uncle Sam. This blog aims to prepare you for the tax break you could make this year, here are few things you should remember.
1. Home improvement loans
Homeowners know that their property taxes are (usually) tax deductible. But those who get home improvement loans may not know that the interest on their loan is also tax deductible. According to IRS, the interest up to the amount $100,000 is fully deductible. Similarly, you can also deduct the interest you pay on your HELOC in most circumstances.
2. Increasing energy efficiency
You may not know that making a home greener could offer you multiple incentives. You can receive tax credits from the state, local or federal governments. As noted by EnergyStar, following home improvements included in the tax credit group are:
- Air source heat pumps: $300 credit
- Hot water boilers, propane, gas, or oil: $150 credit
- Biomass stoves: About $300 credit
- Central air conditioning: $300 credit
- Insulation: Up to 10% of the cost or $500, whichever is lower
- Roofs: 10% of the cost up to $500
- Doors, windows, and skylights: up to 10% of the cost, $200 for skylights, and windows up to $500 for doors
- Geothermal heat pumps: 30% of equipment cost and its installation
- Gas, oil furnace, propane, and fans: $50 for main air circulating fan, $150 credit for furnace
- Non-solar water heaters: up to $300 credit
- Solar water heaters: 30% of the cost of the equipment and installation costs
3. Medical home improvement
If either you, your spouse or dependents are in a wheelchair or disabled, any improvements made for that person can qualify for tax breaks. But to qualify these deductions must cost 10% of your adjusted gross annual income.
Examples of medical expenses, as outlined by the IRS include:
- Adding handrails and grab bars
- Entrance improvement
- Installing lifts and railings
- Making wheelchair accessible
- Entrance and exit ramps
- Widened doorways
- Moving electrical outlets or modifying them
- Modifying kitchen appliances and cabinets
4. Capital improvements
Some repairs you may make to get your home ready to sell can qualify as capital improvements such as:
- A roof replacement
- Replacement of doors, windows, and gutters
- Replacing the HVAC system or furnace
How about Financing home improvements in 2017?
Tax breaks and credits can make home improvements more affordable, but a homeowner needs to carefully consider his or her funding for that major renovation or improvement. According to the Housing and Urban Development (HUD), cash is the “thriftiest” way to pay for the home renovations or improvements, as you would not be liable for any interest charges or fees. But, in the case of emergency repairs, you can adopt these financing methods:
- Mortgage Refinancing
- Federal Housing Administration Loans
- Credit Cards
Remember, apart from the above three methods, there are also other financing options available to homeowners.
We know that home improvement is a major tool to save you on your taxes. This is why we want you to educate yourself on how to qualify for a tax break or credits. Should you have any questions about qualifying for tax breaks, please visit our website www.unitedcounselors.org.