If you're remodelling your home, you may be asking yourself if you can claim home improvements on your taxes, especially if they're large improvements such as a kitchen remodel or an addition. Unfortunately, the answer to that question isn’t very cut-and-dry as it depends on the type of improvement made. According to Intuit, Inc. “you can't deduct the cost [of the improvement] in the year you spend the money. But if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house.”
As with most things tax-related, there are some exceptions. Improvements that increase your home’s energy efficiency, such as installing energy-efficient windows or better insulation can be deducted from your taxes the year they are installed. This is because these home improvements fall under specific tax codes aimed to encourage energy efficiency.
In order to use other home improvements as a deduction on your taxes, you need to wait until you file taxes for the year your house sold. We recommend keeping a folder in a filing cabinet labelled “Selling The House” or something equally as obvious to keep track of all your expenses. In this folder, put all of the necessary documents related to the home improvement such as bids and receipts. Once the time comes to sell your home, you will be able to easily access all the necessary information.
It should be noted that these deductions will only reduce the amount of taxable profit you made from selling your house and won’t reduce your overall taxable income. Federal law states that the first $250,000 of profit made from selling a house is non-taxable, so claiming home improvements will only help if your house has increased in value more than $250,000. That may seem unlikely, especially in this recovering economy, but it is possible if you purchased your home many years ago.
For more information on tax questions, consult your accountant. For more information on home improvements, contact the professionals at SEA Construction.