It’s no secret that homeownership can be expensive. For most homeowners, regular home repairs and maintenance average out to 1% of the purchase price of their property. For a home valued at $300,000, this amounts to $3,000 per year in upkeep on average.
The good news is that taking care of your property can also save you a bundle on your income taxes. If you completed certain home renovations in 2016, you may be eligible for a variety of tax breaks and home remodel tax credits.
Residential Energy Efficiency Tax Credit
The Residential Energy Efficiency Tax Credit expired December 31, 2016, but you can still take advantage of it for qualified equipment or upgrades installed in an existing property in 2016. (Note that new construction is ineligible.) The tax credit covers more than 70 ENERGY STAR products, so there are plenty of opportunities to save.
Insulation and Siding
If you added energy efficient siding to your home in 2016, you may be eligible for a tax discount of up to 10% of the cost up to $500. Although the siding itself isn’t part of the tax credit, related products that air seal and reduce leaks can qualify. Eligible insulation products include weather stripping, spray foam, caulk and house wrap.
If you missed the insulation tax credit for 2016, you can still reduce your heating and cooling costs by installing energy efficient siding. There are a variety of green siding options that deliver a beautiful appearance, low maintenance and unbeatable energy efficiency.
Windows, Doors and Skylights
If you installed new energy efficient windows and doors in your home in 2016, you can claim up to 10% of the cost (excluding installation) up to $200 for energy efficient windows and skylights and up to $500 for doors.
The tax credit is only available for a principal residence, but you can use it whether you replaced just one window or all the windows in your home. You can also use the credit if you added a window where there wasn’t one before. The same rules apply to new energy efficient doors.
The tax credit expired at the end of 2016, but you can still save big by installing ENERGY STAR vinyl windows in your home.
Metal and Asphalt Roofs
There is also a federal tax credit for qualifying energy efficient metal and asphalt roofs installed through December 31, 2016. For asphalt roofs, the roof must contain “appropriate cooling granules.” If your roof qualifies, you can claim a credit worth 10% of the cost — excluding installation — up to $500.
Other Energy Efficiency Tax Credits
Other examples of federal tax credits available for green home improvements include:
- Central air conditioning – $300 tax credit
- Air source heat pumps – $300 tax credit
- Biomass stoves – $300 as long as the unit has a thermal efficiency rating of 75% or higher
- Geothermal heat pumps – Up to 30% of equipment and installation costs
Although the Residential Energy Efficiency Tax Credit expired at the end of 2016, tax policies change from year to year. It’s possible the government could choose to renew the credit for future tax years. In fact, the energy efficiency tax credit previously expired at the end of 2014 but was retroactively renewed through 2016. This is why it’s important to check with a tax professional to get the most up to date information before you file your taxes.
Solar Energy Systems
According to Jacob Dayan, co-founder of Community Tax, a national provider of tax resolution, tax preparation, bookkeeping and accounting services, the Solar Energy Systems Tax Credit saves homeowners more than a deduction because you subtract the amount from your tax bill, not your income. “If you’re looking for a win-win — a way to reduce energy and tax bills at the same time — this is it.”
For 2016, Dayan says the credit is 30% of the equipment and installation costs of solar energy panels and solar water heaters. The 30% rate will remain in place through 2019.
To qualify for the credit, Dayan also says the equipment “must be used to generate power or heat water in your primary or second home — not for something like a swimming pool.”
If you plan to make the switch to solar power, Dayan says it’s best to act as quickly as possible. The Solar Energy Systems Tax Credit is set to decrease to 26% for the 2020 tax year. For 2021, the credit drops to 22%, and it expires completely on December 31, 2021.
The Solar Energy Systems Tax Credit is available for both new construction and existing homes.
Home Improvement Loan Interest Deduction
If you took out a loan for a home remodel, you may be able to deduct the interest. However, the renovations must count as a “capital improvement” that adds to your home’s value, extends its lifespan or adapts it to a new use. The same interest deduction is usually available for a home equity line of credit.
Generally, repairs and regular maintenance won’t qualify as a capital improvement. You can check IRS Publication 936 for more guidance on which types of renovations and improvements qualify.
Changing Your Cost Basis with Capital Improvements
Home improvements not only improve the look and utility of your property, they can deliver big tax savings down the road.
Home improvements can go a long way toward helping homeowners avoid capital gains by keeping home sale profits under $250,000. Any time you make improvements or upgrades to your home, keep detailed receipts. If you decide to put your house on the market in the future, you may be able to add the cost of improvements to your purchase price to boost your adjusted cost basis and reduce the amount of the sale price that is counted as profit.
For example, if you buy a house for $300,000 and make $150,000 in improvements over 25 years, you increase your basis to $450,000. Assuming you sell the home for $800,000, you deduct $450,000 to reach a gain of $350,000. You can save even more in deductions if you have lived in your home for at least two years prior to selling it.
Call Nu Look to Discuss Your Exterior Home Improvement Plans
Tax rules can be complicated, so discuss your potential credits and deductions with your accountant or tax professional. Whether it’s tax season or any other time of year, any season is a good time to begin planning your exterior home improvement project. Call Nu Look Home Design today to learn what we can do for your home. Contact us at (800) 279-5300 or firstname.lastname@example.org.