Home Improvement Tax Deduction

 

Overview: With the approach of spring and summer DIY homeowners are often encouraged to start considering home improvements and repair ideas and projects. However, before you start planning, ordering material and getting out the tools or hiring a contractor, consider if your home improvements may be eligible for a home improvement tax deduction or tax reduction. The home improvement tax breaks will help offset the cost of your project.

First the homeowner should understand the difference between a home improvement and a home repair. A home repair is classified as fixing a problem such as repairing a hole in the roof, fixing a leak or repainting a room. These are repairs, not home improvements. Examples of home improvements are remodeling a kitchen, adding a room, building a garage or installing a swimming pool. These are classified as home improvements because they add to the living amenity of the home's owners and usually add value to the home.

The Internal Revenue Service sets out strict guidelines on how a homeowner can claim a home improvement tax deduction. It is strongly recommended that before you start any home improvement project that you get advice from you tax consultant or from the local office of the IRS on the details of the American Recovery and Reinvestment Act.

Tax deductions for home improvements can fall into any of several different categories. A medical condition that required providing disabled access to the home would normally be classed as a home improvement.

If you are planning a home improvement to an area of your home that is in need of repair you may be able to include the repair as an improvement. The tax act states that where a repair is carried out in the same area of the home that is being remodeled then the repair can be included as part of the improvement project. So, if you are planning on remodeling your kitchen don't forget to take care of other problems such as a leaky roof at the same time and claim the entire project as a tax deduction.

Federal Tax Credits vs Tax Deductions:

Tax credits can also provide significant savings to the homeowner. Whereas a tax deduction for home improvement can reduce the amount of income on which tax is payable, a tax credit directly reduces the tax itself. Tax credits are available for many types of home improvements. For example, installing insulation, adding energy-efficient windows, and some types of highly efficient equipment for cooling and heating, and solar water heating may all qualify for tax credits.

Refer to your tax adviser or IRS publications to assist you in the possible tax saving before deciding on your home improvements project. Visit the IRS website or call a branch office to get a wealth of information.

When you start your home improvements maintain accurate records of spending and save all receipts, even the nickel and dime ones. They all add up pretty quickly. This will assist you when the time comes to claim your home improvement tax deduction.

Tax credit home improvement projects:

The tax credit expires December 31, 2010, while it must be an existing home and your personal residence. The tax credit is 30% of the cost with a maximum total credit of $1500. It is expected that these tax credits will be extended into the future so as to make as many home as energy efficient as possible.

• Windows and Doors

• Insulation

• Roofing

• HVAC

• Non Solar Water Heaters

• Biomass Stove

The following home improvement projects are directed towards existing homes and new home construction. These all fall in the category of energy saving tax credits.

• Geothermal Heat Pumps

• Solar Panels

• Solar Water Heaters

• Small Wind Energy Systems

The homeowner should take advantage of these home improvement tax credits for each home improvement projects. It will help reduce the cost of the projects rather nicely.

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