The holidays are over and now it’s time for another festive celebration: Tax Season! The beginning of a new year begins an annual scavenger hunt of necessary forms, receipts and other statements needed to file your taxes.
Some filers who anticipate a balance due to the government may be looking for extra deductions to offset tax amounts. Maybe 2019 included significant home remodeling projects or other renovations that increased the home’s appraised value. Are home improvements tax deductible? Can all that work lessen the amount owed on a tax bill?
The Taxing Details of Deductions
Many tax filers take the standard deduction on their taxes. Other filers itemize deductions. In addition, there are even tax credits that can be claimed if a filer meets the specific set of criteria. Examples include Earned Income Tax Credit (EITC) or Child Tax Credit.
When taking any credit or deduction, filers must follow the rules and/or qualifying criteria outlined by the Internal Revenue Service. This is where itemizing deductions or taking tax credits can get really sticky. You can’t simply take credit or itemize an expense because you need to offset your taxes due. There are rules that must be followed, and taking a deduction or credit when you don’t qualify could get you audited…or worse!
The best advice when you wish to itemize deductions or claim a tax credit is to consult with a reputable tax preparer—preferably a certified public accountant (CPA). Not sure whom to call? The IRS has a list of preparers “with credentials.” A qualified tax preparer will be able to explain to you which deductions and credits you can claim on your taxes.
Are Home Improvements a Deductible Expense?
Spending $100,000 on home improvements and deducting them at the end of the year sounds pretty great, right? Unfortunately, the details on deductions related to improvements are complicated.
Unless you sell your home, what you spend on improvements won’t affect this year’s taxes…even if those renovations greatly affected your finances. However, you should still keep all the receipts. According to TurboTax, “if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house.” TurboTax notes, though, that repairs are a different story. Painting a room or fixing a plumbing problem isn’t an improvement.
If you sold your house this year, you may be in luck. Talk to your tax preparer about any renovations made to your house prior to the sale.
You Can Still Seek Out Rebates
Unrelated to tax deductions and credits, rebates may offset the cost of an improvement or new product. Solar panels, energy efficient appliances and HVAC units may qualify for a rebate. Homeowners can visit EnergyStar to learn more about rebates related to energy efficiency products. Your utility company could offer rebates, too.
Homeowners also can find rebates through HomeSelfe. You never know how much money is out there until you look! Even if you can’t claim repairs on your taxes, you may still find savings through rebates!
What about Energy Tax Credits?
The residential energy efficient property credit is a unique option for homeowners who may have invested in significant energy savings improvements…like wind turbines. Again, though, criteria for this particular credit are specific. If you think that you may qualify, talk to your tax preparer.
Beware of Bogus Preparers!
Sometimes individuals get lured into believing that they can snag LOTS of deductions and credits because a preparer is promising a big refund. Beware of any preparer who promises a large refund on your taxes. Unfortunately, tax season is rife with scammers—from robo-calls threatening you with jail time because of taxes owed to bogus preparers.
These scams can cost individuals money and perhaps even cause serious legal issues. A refund is never a guarantee. No one can promise a refund, and no filer can take credits or deductions unless they legally qualify for them.
A reputable professional will always be able to answer questions about deductions and credits. They can explain in detail why you qualify or why you don’t. If 2020 is the year you need to write a huge check to the government, a tax professional also can best advise you on how to adjust paycheck withholding amounts so you don’t owe too much money in future filings.
And while you may not be able to deduct that massive home renovation this year, keep the receipts anyway. When you sell your home, they may come in handy.