Tax-Deductible Home Improvements
While when you purchased your home, it may have seemed perfect, but with time, most owners feel the need to make improvements. However, even though the list of ideas may be lengthy, there is usually a lack of funds to fulfill those home improvement ideas.
But, these days, homeowners need no longer despair about the paucity of funds. The Internal Revenue Service (IRS) often assists homeowners to carry out their renovation plans for their homes. In 2006, a bunch of tax incentives were put into effect, which encourage homeowners to carry out energy-efficiency based renovations. Homeowners get credits, which help in reducing bills from the IRS, according to the energy-efficient improvements they choose to add in their homes, such as replacing doors and windows, adding special material for roofing or insulation, converting cooling and heating systems from being electricity based to solar power based, and so forth.
Tax Breaks for making Conventional Energy Efficient Renovations
The 2005 Energy Tax Incentives Act introduced a ten percent tax credit with a $500 cap for lifetime for making home improvement renovations using conventional technology. This credit is dependent on what the new energy-efficient renovations cost which include heating pumps, water heaters, central air conditioners, hot water boilers, furnaces and the like.
In addition, there is also a limit on the specific amounts of credits within each category of conventional energy-efficient improvement. Besides, the $500 cap is applicable to the total number of energy-efficient upgrades made for both the years, 2006 and 2007, and not for each separate year. Therefore, on claiming the maximum worth of $500 for making energy-efficient upgrades in 2006, you are not eligible for any more in 2007.
This part of the credits terminates in Dec 31. However, for solar-based upgrades, the tax deductions are annual and not cumulative, which continue through to 2008.
Tax Breaks for making Solar-based Renovations
Homeowners are eligible for claiming up to $2,000 in credits every year if they install solar improvements such as solar apparatus which produces photovoltaic electricity, fuel-cell power systems, solar water heaters, and so on.
The IRS has also issued official guidelines for these home improvement tax credits, which details EnergyStar.gov has made into a useful chart. This chart can be taken to hardware stores in order to find things that make you eligible for tax deductions.
These days, many manufacturers provide the details of credit ratings on their packaging. Also, check out the tax breaks your state offers for making energy-efficient improvements through the Database of State Incentives for Renewables & Efficiency. Many states offer more generous tax incentives compared to those given by the federal government.
Tax Breaks for making Medical-based Renovations
If you install medical equipment in order to provide care for yourself or your spouse, you are eligible to include the amounts you pay for them as medical expenses. These are tax deductible as long as you comply with the rules made by the IRS and the orders given by your doctor. However, according to IRS’s standard, the tax deduction will be offset if whatever you add increases your property’s value.
As far as medical deductions are concerned, however, the IRS has been getting increasingly generous. Some of the equipment or renovations that the IRS considers eligible for medical deductions are: adding a chair lift or a ramp, widening of hallways and doors, lowering cabinets and counters, adjusting electrical outlets and fixtures, installing modifications in the bathroom like support bars and railings, changing the landscape outside to make accessing the house easier.
For any medical equipment, apart from getting tax deductions for actually installing them, you also get deductions for expenses made for operating and maintaining them.
Tax Breaks for making Partial Medical-based Renovations
Sometimes, you can be eligible for some amount of tax deductions even when the changes you make add to the value of your property. If the improvement you make costs more than the increased property value, the excess can be deducted. For example, if a person is suffering from a lung disease and is advised by physicians to stay in a dust-free environment with high humidity and a particular temperature, which requires the installation of a central air conditioner which costs $1,300, which increases the value of the home by just $800, the excess $500 is eligible for tax deduction as medical expense.
In order to make claims for these deductions successfully, you will require proper documentation. A letter from your doctor giving the details of the reasons for the medical home renovations being recommended for the patient is one of the best documents for making medical claims.
When making medical tax deductions claims both the home renovations and the other costs for health care have to be listed on Schedule A, and only the amount that is in excess of 7.5 percent of your gross income that is adjusted is eligible for deduction.
If making major renovations, that limit may not be problematic. But if it seems you may fall a little short of the amount required, coordinated tax planning and health care may help.
And if you end up having to pay AMT, the upper limit for tax deductions on medical expenses goes up to 10 percent. Check on the online AMT calculator of the IRS, or discuss with your tax advisor whether this tax will prove to be problematic with any of the medical home renovations you are planning to make.
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About the Author: Phoebe
Phoebe loves shoes and all things bright and beautiful. Her opinion is often bias towards girl power oriented issue but when confronted with matter that matters Phoebe will always have her point noted. Topics of interest include fashion, finance, money, pets, health and current issue.