More Tax Deductions for Home Improvements
5: Rent Out Home, Write Off Repairs
Owning a second property you rent out isn't that different, tax-wise, from owning a business. (That's according to the IRS. You might point out that your real job would never require you to get up in the middle of the night to fix a toilet that backed up into the tub. Unless that really is your job, in which case you're just a glutton for punishment.)
Much like a home office space, you can write off the cost of repairs to your rental property and then depreciate improvements. That's pretty basic, and cool enough. But consider that if you rent out a portion of your own home, it works like the home office deduction. You can write off the cost of "your" home repair if it's in the rental area, and you can write off improvements for the percentage of the space used for renting.
4: Accidental Losses
It's not exactly the kind of home improvement you plan with paint chips or blueprints, but the fact remains that casualty, disaster or theft losses can be deducted on your tax return when appropriate. Nope, it's not going to let you deduct the cost of the repairs or improvements, but getting a break on the damage or loss might be helpful when budgeting for restorations.
Do keep in mind that you have to itemize your deductions to write off any losses; that means that you can't take the standard deduction on your return. Remember as well that you pretty much need to take the loss in the year that the incident occurred — unless it's specified by a federally declared mandate. Then you can claim it as a previous year loss. (That makes sense if the disaster occurs in January and you're filing your taxes in April, for instance.) And don't forget: You can't deduct costs if you're being reimbursed by insurance or some other benefit program [source: IRS 515].
3: Property Taxes
Although not directly related to renovations, it's important for homeowners to remember that they can deduct their property taxes on their returns. Now, remember that property tax isn't going to show up on your W-4; usually, folks include their property tax in mortgage payments, so only the bank or lender is handling the money. But if you itemize your deductions, it's certainly worthwhile to add your property tax payments from the given year to your write-offs.
But what does this have to do with improvements? It is actually more of a tax warning than tip. Making substantial improvements to your home or property are going to raise that property tax assessment. Sure, you might get to write off a bigger amount, but you also might not be entirely thrilled to be paying the taxes in the first place.
2: Medical Reasons
For those folks who need to make home improvements or adjustments to accommodate a disability or medical condition, you'll be pleased to know that the government offers a bit of tax relief for your project. If you need to make changes to your home to improve access or to alleviate exacerbating medical issues, you can absolutely deduct the costs on your tax return.
These "improvements" are considered medical expenses and are not to be mistaken for projects that increase the value of your home. If you need to modify doors to accommodate a wheelchair or create ramps to bypass steps, that's great. If you add a fountain to the entryway because you find the sound of water decreases your anxiety, the IRS might come knocking. Remember that because these are considered medical expenses, they're only allowed if you itemize and exceed certain income limits [source: IRS 502].
1: Moving Expense Deduction
Sometimes we find ourselves in the position of not just having to improve our homes, but also having to get rid of them entirely. Let's call it the ultimate home improvement: buying a new one. While we already covered how selling a house has its tax benefits, you should also know that if you're forced to move for a job, you can write off some pretty sweet deductions too.
You do have to qualify for the deductions, and that includes making sure the new gig is 50 miles (80 kilometers) or more from your old place. (You also have to make sure the dates of your move line up with a reasonable start date.) But if you do have to buy a new place, know that your moving expenses — and that includes transportation, lodging, even storage and shipping — are all deductible.
Author's Note: 10 Tax Deductions for Home Improvements
It's kind of cool that we can say something like, "Home improvements don't bring any deductions," and then turn around and find 10 ways that home improvements might reduce your tax liability. Credit the IRS for offering their myriad ways of making home ownership a not-so-terrible deal.
- eFile. "What Are Tax Deductible Home Expenses?" 2014. (Nov. 10, 2014) http://www.efile.com/tax-deduction/income-deduction/home-deductions/
- Fishman, Stephen. "What Home Improvements Are Tax Deductible?" Nolo. 2014. (Nov. 10, 2014) http://www.nolo.com/legal-encyclopedia/what-home-improvements-tax-deductible.html
- Internal Revenue Service (IRS). "Publication 502." 2013. (Nov. 10, 2014) http://www.irs.gov/publications/p502/ar02.html#en_US_2013_publink1000178902
- Internal Revenue Service (IRS). "Topic 515." Aug. 19, 2014. (Nov. 10, 2014) http://www.irs.gov/taxtopics/tc515.html
- Internal Revenue Service (IRS). "Publication 946." 2013. (Nov. 10, 2014) http://www.irs.gov/publications/p946/ch01.html#en_US_2013_publink1000107378
- McCormally, Kevin. "The Most-Overlooked Tax Deductions." Kiplinger. Nov. 2013. (Nov. 10, 2014) http://www.kiplinger.com/slideshow/taxes/T054-S001-the-most-overlooked-tax-deductions-slide-show/index.html
- TurboTax. "Deducting Your Real Estate (Property) Taxes." Intuit. 2013. (Nov. 10, 2014) https://ttlc.intuit.com/questions/1899887-deducting-your-real-estate-property-taxes
- TurboTax. "Can I Deduct Home Improvements on My Tax Return?" Intuit. 2014. (Nov. 10, 2014) https://ttlc.intuit.com/questions/1901158-can-i-deduct-home-improvements-on-my-tax-return
- TurboTax. "Federal Tax Deductions for Home Renovations." Intuit. 2014. (Nov. 10, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Federal-Tax-Deductions-for-Home-Renovation-/INF14245.html
- TurboTax. "Home Energy Credits." Intuit. 2014. (Nov. 10, 2014) https://ttlc.intuit.com/questions/1899863-home-energy-credits-for-2012-and-2013
- TurboTax. "Home Improvements and Your Taxes." 2013. (Nov. 10, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Home-Improvements-and-Your-Taxes/INF12010.html
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