With Tax Day just around the corner, it’s time to start gathering those tax documents together and figuring out if certain expenses are tax-deductible, such as that kitchen remodeling project you did over the winter. While you’re not allowed to deduct home improvements if your home is used purely as a residence, there are a couple of ways to receive tax benefits if it’s used for other specific purposes.
Defining Home Improvements
For tax-related purposes, a capital improvement is anything that extends the life of your home, adds to its overall value or modifies it for other uses. This can include big projects such as bathroom remodeling, a home security system or a new roof, as well as smaller projects such as a water heater replacement. Not included are home repairs such as fixing windows and gutters or repainting a room.
The cost of any changes made to your personal residence are considered non-deductible personal expenses, though it can be added to the tax basis of your home (the amount invested in your home for tax purposes). This can help you save on taxes by lowering the amount you’re required to pay if you sell your home at a profit.
Qualifying for a Home Office or Rental Deduction
Although you can’t deduct home improvements for a purely personal residence, you can depreciate home improvement expenses in certain situations. One such circumstance is owning a business with a home office in a residence that’s regularly and solely used for that business. This will qualify you to deduct 100% of home improvements made to the home office itself, and a portion of those that benefit the whole house. The percentage that can be depreciated is directly proportional to the amount of space the office occupies in your home.
Another circumstance that qualifies for home improvement depreciation is if you rent out part of your home. This enables you to depreciate home improvement costs as a rental expense. As with a home office, only the area being rented out can be fully depreciated, while improvements made for the whole house are depreciated based on the amount of space being rented out.
Need a Handyman? Get Help From the Pros
Need a handyman to update a home office or remodel your existing home rental space? Just call Handyman Connection at 1-800-88-HANDY to set up a consultation with one of our talented craftsmen and get a FREE estimate for your project.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.