Since we are coming up to the end of the year and tax time the RRSA St. Louis team decided this would be a good day to talk about what kind of tax breaks you can get for improvements made to your Greater St. Louis home. As the preferred home improvement specialist in the area, RRSA St. Louis is often asked by homeowners about any tax breaks and credits available for home improvements.
To get the definitive answers to the question of tax credits and breaks available for home improvements, we turned to one of the biggest experts in income tax issues, TurboTax from Intuit. This article from their blog, Federal Tax Deductions for Home Renovations, does a fantastic job of dispelling any mystery about taxes and home improvements. The main thing we discovered is that renovation to your Greater St. Louis home is not generally tax-deductible, but there are instances where you can get tax breaks and credits. Those exceptions are listed in the article below:
Looking to spruce up your home without breaking the bank?
Renovation of a home is not generally an expense that can be deducted from your federal taxes, but there are a number of ways that you can use home renovations and improvements to minimize your taxes. These include both tax deductions and tax credits for renovations and improvements made to your home either at the time of purchase or after.
Using your mortgage to make home improvements
One way to save on the costs of home renovation is to make improvements to the home at the time it is purchased.
If the mortgage you take out to buy a home includes additional money to make renovations, your acquisition cost for the home includes this amount. You can then deduct the interest on this amount from your income as part of your mortgage interest deduction.
Improvements that qualify as medical expenses
Improvements to your home can also be deducted from your income as medical expenses if they are medically necessary.
The cost of installing entrance or exit ramps, modifying bathrooms, lowering cabinets, widening doors and hallways and adding handrails, among others, are home improvements that can be deducted as medical expenses. But the deduction amounts must be reasonable, given their medical purpose, and expenses incurred for aesthetic or architectural reasons cannot be deducted.
In other words, making a residence wheelchair accessible qualifies, but adding a sculpture garden does not.
Additionally, any amounts spent on these improvements that increase the value of your home cannot be claimed as a medical-related expense.
Tax credits for energy generation
One of the best ways to lower your taxes is to take advantage of energy tax credits by installing qualified energy generating systems.
You can get a federal tax credit of 30% of the cost of qualifying geothermal heat pumps, solar water heaters, solar panels, small wind turbines, or fuel cells placed in service for an existing or new construction home. The credits were good through 2016, except for the solar credits which are good through 2019 and then are reduced each year through the end of 2021.
Except for fuel cells (which must be installed in your primary residence to qualify), the credit can be used for items installed in vacation or second homes as well.
The 30% credit applies to the cost, including labor and installation, and there is no maximum limit (except for fuel cells). For example, if you purchase and install solar panels for $10,000, you get a $3,000 tax credit right off the bat—not counting the future savings on your electric bill.
This tax credit must be taken in the tax year that the item was placed in service, and a Manufacturer Certification Statement must accompany the item to qualify. For complete details, visit Federal Tax Credits for Consumer Energy Efficiency.
Home sale exemption
Under the home sale exemption, qualified sellers do not have to pay capital gains on appreciation of their primary residence when it is sold for a profit of $250,000 or less if filing as single and $500,000 or less if filing married filing jointly. Because home renovations increase the basis in your home, they can help reduce the amount of your sale price that is counted as profit, and therefore can potentially help get you under the home sale exemption to avoid capital gains altogether. Even if not, the increased basis can limit the taxable portion of the sale price.
Hopefully, the above information has answered any tax questions you have about improvements to your Greater St. Louis home. If you don’t find the answer to your question above, call us and we will try to find the answer for you, and we want you to also know that RRSA St. Louis provides FREE home inspections, so call us today and set up your appointment.
Serving Greater St. Louis, Chesterfield, St. Charles, O’Fallon