Whether you make capital, energy-efficient, or medically necessary improvements, you can deduct those expenses from your taxable income. There are also some special considerations you should keep in mind when making home repairs. Here are some guidelines:
While the majority of capital improvements and home repairs are not taxable, you must pay sales tax on materials. For most projects, these materials are purchased through a contractor, and it is not necessary to purchase them yourself. However, you may be able to get a tax break if you purchase them directly from the contractor. These costs are generally low, and they can be deducted from the total cost of the project.
A capital improvement is any structural change that increases the property’s value. These improvements may include new kitchen cabinets or a hot water heater. A repair may not be a capital improvement, however. For example, replacing the thermostat on your hot water heater or replacing broken steps is not a capital improvement. Even painting your current cabinets may not qualify as a capital improvement, since they are merely maintenance and not permanent improvements.
Incentives to improve your home’s energy efficiency abound. Many states and even the federal government offer tax credits for these upgrades. If you upgrade your home with solar panels, air-source heat pumps, central air conditioning, circulating fans, or other energy-efficient upgrades, you may be eligible for a tax credit worth 10% of the cost of the improvements, up to $500. In some cases, you may also be able to get a property tax break for the improvements as well.
If you’re planning to upgrade your home in the near future, consider making the investment in energy-efficient windows. Often, these improvements qualify for tax credits. However, there are some limitations to the energy-efficient improvements you can make. If the improvements are medically necessary, they may be tax-deductible. Also, improvements that improve the home’s resale value are tax-deductible. These improvements can include adding a ramp to a home for wheelchair accessibility, or adding a security system or a swimming pool.
The new law enables taxpayers to write off the cost of medically-necessary improvements to their homes. Medically-necessary improvements are those that are done to improve a home in order to make it more functional for an older or disabled resident. This could include installing a wheelchair ramp or a window air conditioner. Medically-necessary improvements can also include operating and maintenance expenses, such as electricity and repair contracts. These expenses are deductible if the equipment continues to be medically necessary.
If you’re planning to make improvements to your home in order to save money on energy, add space, or enhance the comfort level of your home, you may want to consider claiming the cost as a deduction. The costs of these improvements can be written off as a business expense, which means you’ll be able to deduct them over time. This deduction can lower your tax burden, as well as increase the value of your home. Repairs are also important for the upkeep of your home and help it remain in good condition.
Rental property repairs
There are a number of different ways to deduct the cost of rental property repairs. Most are not capital expenses but can be claimed as operating expenses. Examples include painting, fixing gutters, floor covering, and replacing broken windows. Some of these costs can also be deducted as transportation costs for collecting rent, managing the property, or ensuring the property is maintained. Additionally, utilities like water and trash are also tax deductible.
Unless you have a property manager on staff, you will need to respond quickly to maintenance issues. Some of these repairs are relatively easy to complete yourself. You can watch YouTube videos or read repair tutorials on the internet. But you should also know when to hire a professional. For example, a landlord who replaced wooden roof shingles with better composition shingles was found to have made an improvement. Documentation is the key to winning this argument with the IRS.
Home office space repairs
If you’re thinking of making some home office space repairs, you’re in luck! In 2022, these repairs will be tax-deductible for the first time in more than a decade. As long as the work is for a business purpose, you can deduct the cost of these improvements. However, there are some exceptions: expenses related to a personal sauna in the master bathroom won’t be deductible.
One of the easiest ways to calculate your home office deduction is to use the simplified method, which requires fewer calculations and may yield a smaller tax break. The standard method, on the other hand, requires more complicated calculations, but can yield higher deductions. Before deciding on a particular method, consider calculating your expenses under both methods. As an added bonus, you can switch methods from year to year.