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Tax Deductible: Are Your Home Improvements?

Home improvement meeting discussing tax deductible and other real estate business

There’s a lot of confusion swirling around on whether or not home improvements and repairs are tax deductible. Taxes are a complicated business for homeowners, and they just get murkier once you start adding improvements… Or do they? The truth is: home improvements don’t complicate your taxes any further than normal. There are few guidelines as to what constitutes a home improvement versus a repair, but once you have them clearly defined it’s easy to see what counts as tax deductible and what does not. We’re here to give you the rundown on whether or not your home improvements are deductible on your taxes.

Repairs vs. Improvements

Let’s start with a simple fact: repairs are not tax deductible. While they may be necessary, fixing something which was broken does not affect your taxes whatsoever. If you were to sell a house, you aren’t going to put ‘just fixed the dishwasher’ on the ad. You might put ‘brand new, stainless steel dishwasher’, which would count as a home improvement over a repair. What constitutes a home improvement is something which increases the value of the home or gives it new uses, whereas a repair is something which keeps the home at the same value it previously was. A foundation crack getting filled is a repair, but a new pool in the backyard is an improvement.

If You’re Living In the Home

Home improvements don’t affect taxes if you’re only using the home for personal use. If you don’t have a renter or aren’t selling the home, your improvements won’t change your yearly taxes. The only exception to this is if you do a renovation on a home office and use it for your business. In this case, the renovation could be added as a business expense. If you do an improvement to the entire home (for example, a new A/C unit so you can work in comfort), you can deduct the same percentage of the improvement as use it is to the office. If the office takes up half of the home, you can deduct half of the total expense in your yearly business expenses. Improvements on a home where you have a renter living can be deducted from the rental income, but the same percentage policy applies as with the home office improvements; an improvement to the entire home must be deducted only so far as the renter uses it.

If You’re Selling the Home

The most common way to have home improvements be tax deductible is when you’re selling the home. There’s a law in place which states the first $250,000 of a home sale is tax-free ($500,000 for couples filing together), but after that, you do pay taxes on the profit. Home improvements come into play because they change the value of the home. If you’ve added significant property value to the home, you’ve increased the ‘basis’. This means the amount deducted from the final sale cost to determine the profit. You end up saving money by doing the renovations because they affect the bottom line during the sale. After the basis is deducted from the sale, you have to pay taxes on the profits – but the profits seem less because of the improvements raising the value of the sale. Get renovating and contact Las Vegas Remodel today by calling 702-602-9197!

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