When tax season comes around, we try to recall what donations we made in the past year and if there are any deductions we qualify for. While home improvement projects definitely add value to your home, they don’t guarantee you extra money on your tax return. We’ll explain whether home improvements are tax-deductible and when you can expect to benefit.
Large scale home improvement projects like kitchen and exterior renovations are typically done for two reasons. A homeowner loves his or her home and wants to ‘make it their own’ by having custom work done to reflect their personal style and preferences or a homeowner is prepping to sell and knows that a modern bathroom or fresh siding will increase the home’s value and appeal to more homebuyers.
Tax-wise, home improvements benefit the latter. When selling a home and trying to determine the profit you made from the sale, the money spent on home improvements is added to the original cost of the home. This is called the “adjusted basis”, which is then compared to the amount you received from the sale. According to Turbo Tax, “If you’ve made a profit, that gain may be taxable (generally only if the profit is more than $250,000 for an individual or $500,000 for a married couple filing jointly). Unfortunately, losses on sales of personal residences are not deductible.” Either way, it’s important to keep an accurate report of what you spent on home improvements over the years to potentially reduce or avoid taxes when selling the home.
Typically, the only type of home improvements that have an immediate benefit are of the environmental variety. You won’t see the perks on your tax return, but rather, in the form of a rebate. The AustinTexas.gov site documents what incentives and rebates Austin residents are eligible for, one being the Power Savers Program from Austin Energy. Residents can potentially earn money for upgrading to energy efficient appliances.
At Falcon Residential, our goal is to help homeowners discover the true potential of their home. Whether you’re looking to make upgrades for your own enjoyment or for future homebuyers, we are happy to help!