Home improvements can be expensive and time-consuming. Fortunately, while the value they deliver is generally worth the cost, they can also come in handy when you’re filing your taxes.
Certain home renovations and improvements are eligible for tax deductions in Delaware if they meet the right criteria. Under current tax code Publication 523, everyday home repairs that are necessary to fix up or maintain your property are no longer tax deductible. They were at one point, which can lead to some confusion. However, there are other ways to capitalize on home improvements for tax purposes.
Are Home Repairs Tax Deductible in 2020?
If you use your home as your primary residence you can’t deduct home repairs on your taxes, but you can potentially deduct home improvements. While home repairs and home improvements may sound similar, there are differences, especially as they pertain to your tax liability, according to Moving.com.
Repairs are any projects you do to maintain your home in a certain condition, such as fixing broken windows, a busted furnace, or cracked tile. Home improvements, on the other hand, enhance what was already there to increase the market value of your property. Even then, the tax benefits you can obtain from home improvement projects typically kick in only once you sell your home, not on a yearly basis.
For example, if you sold your house in 2019, you face a capital gains tax obligation, meaning the federal government expects a cut of the profits made from your home sale based on the amount you received. You can increase the cost basis of your property—and lower your capital gains tax burden—by including additional costs spent on capital improvements to your home. The IRS defines a capital improvement as any renovation or remodeling project that “adds market value to the home, prolongs its useful life or adapts it to new uses.” The value must endure for at least a year following the completion of the project.
Page 9 of IRS Publication 523 gives specific examples of what counts as a home improvement that can be deducted from your tax liability on your home sale profits. According to Investopedia, some examples of IRS-approved residential capital improvements include:
- Adding a bedroom, bathroom, or a deck
- Adding new built-in appliances, wall-to-wall carpeting or flooring
- Making improvements to a home’s exterior, such as replacing the roof, siding or storm windows
- An upscale garage door replacement
If you did not sell your home last year, but you’re preparing to, make sure to keep a record of all the costs you incurred from value-adding home improvement projects that may increase the cost basis of your home and reduce the size of any taxable profit when it is sold.
Tax Benefits for Energy Efficiency and Home Offices
One tax benefit you may be able to obtain from home improvements to your primary residence has to do with augmenting its energy efficiency. Homeowners in Delaware can access a tax credit for the cost and installation of certain energy upgrades, including items such as:
- Solar panels
- Solar-powered water heaters
- Geothermal heat pumps
If you decide to undertake a major project to increase your home’s energy efficiency, keep careful accounts of your expenditures to include when you file your taxes.
Additionally, if your home is part of your income source—i.e. you rent out a room—or you work from home, you can get a deduction for repairing or improving that portion of your house. For example, if you make repairs to a qualifying home office, it is deductible as a business expense. If you rent out part of your home, you would also be eligible for tax deductions available to landlords.
Lastly, you can deduct certain home improvements from your income as medical expenses if they are considered medically necessary for you, a spouse, or your dependents. Such projects might include adding railing, installing porch lifts, or widening stairways, hallways, and doorways.
The Benefits of Home Improvements
There are several good reasons to make home repairs and improvements, such as protecting your investment and increasing the convenience, comfort and function of your residence. Sometimes these projects can also increase the market value of your home, making it a more profitable asset when it sells. If you are weighing the costs versus benefit of a home improvement in Delaware, contact Bromwell Construction to request an estimate and find out what you stand to gain by undertaking the project.
“Tax Season Already? Here are the 5 Expenses Home Sellers Can Write Off.” HomeLight. Accessed online at https://www.homelight.com/blog/tax-write-offs-for-sellers/
“Can you Deduct Home Repairs or Home Improvements on Taxes?” Moving.com Article. Accessed online at https://www.moving.com/tips/can-you-deduct-home-repairs-or-home-improvements-on-taxes/
“Federal Tax Deductions for Home Renovation.” Intuit, which operates QuickBooks, QB, TurboTax, ProConnect, and Mint. Accessed online at https://turbotax.intuit.com/tax-tips/home-ownership/federal-tax-deductions-for-home-renovation-/L1Xgiv2gh
“Capital Improvement.” Investopedia.com. Accessed online at https://www.investopedia.com/terms/c/capitalimprovement.asp“Deducting Medical Home Improvements.” NOLO. Accessed online at https://www.nolo.com/legal-encyclopedia/deducting-medical-home-improvements.html