Are Home Renovation Costs Tax Deductible?
If you’re considering a home improvement project, you may be looking at some added expense to get things the way you want them. But you could also obtain at least some financial relief in the form of a future tax deduction – depending on the type(s) of renovations you make. This is because, typically, these types of deductions will come when you sell your home, and not necessarily in the year they are made.
The money that most people spend on their homes will usually fall into one of two primary categories – improvements and repairs. The expenses you incur for improvements (items that can add value to the home, prolong its life, and/or allows it to adapt to new uses) can be added to the “tax basis” of your home.
Tax basis refers to the amount that you can subtract from the sale price of your home when you go to sell it. As an example, if you originally purchased your home for $100,000 and you made $20,000 in improvements, your basis would be $120,000. Therefore, if you sell the home for $150,000 your “profit” would be just $30,000 rather than $50,000.
Purchase Price: $100,000
Tax Basis (without improvements): $100,000
Sale Price: $150,000
Difference: $150,000 – $100,000 = $50,000
Tax Basis (with improvements): $120,000
Difference: $150,000 – $120,000 = $30,000
Some of the items that can count as an improvement include building an addition, adding a swimming pool, and installing storm windows. Even adding a home security system could count as a home improvement. It is important to note that there are various energy-saving home improvements that could provide you with tax credits in the year that you make them.
If you own a home in Central Florida and you’re considering make some improvements, talk to the experts at LP Design and Renovation. You can reach us at (407) 901-6215 or via email by going to https://lpinspiredrenovations.com/contact/.