What home improvements are tax deductable
Home Improvement Tax Deductions for 2014 – What You Need to Know
Home owners commonly wonder if they are eligible for tax breaks for the money they have spent fixing the home. The answer is yes and no. It just depends on the situation. However, whenever you incur home improvement expenses it is important to keep them documented.
Anytime you make a home improvement you cannot deduct the cost in the year which the improvement was made. However, you should keep the expenses documented because it can reduce your taxes when you sell your home.
Improvements versus Repairs
The money that you spend on your home breaks down into two categories: home improvements and repairs. The cost of capital improvements can be added to your tax basis in the house. The tax basis is the amount that is subtracted from the sales price which determines the amount you profit. A capital improvement is something that adds value to the home or prolongs the homes life.
There is no list as to what qualifies; however, you will be able to add in costs of adding on to your house, installing a swimming pool, getting a new roof, or having a central air system installed. But, keep in mind large expenses are not the only thing that qualifies.
If you add in an extra water system, add storm windows. install an intercom, or home security they also qualify. Additionally, certain energy-saving home improvements can also get you tax credits when they are made.
However, on the other hand the cost of repairs is not added. Fixing a gutter, painting, or replacing a window pane would be considered as a repair instead of an improvement.
Tracking Less Critical Than in the Past
In previous years it was critical for home owners to make sure that they saved receipts on all of their eligible home improvements. Every dime was added so it was a dime less that the IRS could put taxes on when the home was sold. However, now the home sale profits are tax free for the majority of home owners so if you track intensely it may not pay off in the long run.
Save When You Sell
Under the most recent law, the first $250,000 on the profit of your sale of your principal residence is tax
free. If you joint file that amount is double ($500,000) in the event that you have owned and lived at the residence for at least two of five years before the sale. When this law was put into place a lot of tax advisors thought it meant homeowners were no longer required to keep track of their expenses. But, it has now been confirmed that you still need to keep good records.
To calculate the size of the profit you will receive when you sell your home you will need to add everything you paid for the house (i.e. the original purchase price, fees, and home improvements) to come up with the total which is referred to as the “adjusted basis”.
Then, compare the adjusted basis with the sales price you receive for the home. If you have made a profit the gain may be subject to taxes. However, this usually only occurs if the profit is more than $250,000 ($500,000 for joint filers). Additionally, any losses are not deductible.
So, overall, it does make sense to keep track of your housing expenses so you can reduce or avoid taxes when you sell.
How to Make Sure You Are Prepared
1. Make a dedicated folder to keep all of your receipts/records that related to home improvements.
2. If you have resided in your home for an extended period of time and the housing rates have been rising gradually keep in mind a portion of your gain may be subject to taxes. However, it can be reduced by including the home improvements that you have paid for.
3. If you have a home business or rent a portion of your home you may be eligible to write off part of your homes adjusted basis through depreciation. However, when you sell the house you will not be able to exclude the amount of depreciation you took under the $250,000/$500,000 gain exclusion break. Also, keep in mind that the cost of the repairs may also be deductible.
Remember, with TurboTax you can file your taxes online over the web, or download our software to your computer. All of these options allow you to electronically file your tax return to the IRS so you can get your refund back as fast as possible. You can even estimate your tax refund in advance at TurboTax.Source: homeimprovementtaxdeductions.weebly.com