If you work from home either on a full-time or part-time basis, most likely you’ve staked out a part of your home to work. So it’s natural to wonder, maybe if I remodel this area, it would be tax-deductible! Well, the answer is yes, in different ways. You would need to plan with your accountant how you’d set up this home office.
If you work as a sole proprietor or a type of corporation, you can definitely claim a Schedule C on your taxes as a home business. But you have to set it up properly. In order to do that, definitely call up your accountant and see how you can structure a business at home. Even if your primary income is on a W2 salary. You could potentially earn a little extra under a business and that way you can claim a home office. But this isn’t the only way to get tax deductions for your remodeling work! Keep reading for more tips on how your remodeling can be credited or deducted on your taxes.
Home Office Deduction
A home office can definitely claim repairs and home improvements as a deduction. Home repairs are deducted the tax year they are completed, and home improvements (remodeling) are deductible over time with depreciation. So it can be deducted the first year and then over the next few years a percentage. Most tax programs and accountants will work out how this can work. Also, if you remodel your bathrooms and kitchen, unless you actually claim those areas as office area, those parts cannot be included.
Energy-Efficient Deductions
The other way you can deduct expenses on your taxes is through implementing energy-efficient home improvements to your house. These are normally given as a percentage of the cost of the product that you installed in your house.
Qualifying Products for Energy Efficiency
Properties or products that qualify for the energy efficiency improvements credit include the following:
- Exterior windows, skylights and doors that qualify as energy-efficient
- Roofs (metal and asphalt) and roof products
- Insulation
- Energy-efficient HVAC systems
- Water heaters (solar, natural gas, propane or oil)
- Biomass stoves
- Solar systems and their parts (if owned)
These credits are up to a certain percentage and limit however, and you can read more about it on the IRS’s website under Energy Incentives For Individuals.
Home Remodeling for Your Rental Properties
Any home improvements that you do to your investment and rental properties (must not be your primary home), repairs and upgrades are all deductible on your taxes. Major remodeling that involves added value to the property are not deducted entirely in a single year, but also deducted over time.
Accessibility Deductions for Your Home
If you or your household members have certain medical needs, requiring some changes and upgrades to the home, this can also be deductible. In addition, you can deduct any expenses to operate or maintain those medical upgrades. Examples include handrails in showers, baths, hallways and stairs, exterior railing, wheelchair ramps, wider doors and walkway areas. Anything that you may deem necessary for your medical or accessibility needs.
Federally-Declared Disaster Deductions
Of course you’re not waiting around for a natural catastrophe. However, should something unforeseen happen, the IRS does offer a break on taxes to recoup any loss. Note you do have to itemize deductions in this case. Most likely the much better way to go is with your home insurance, because if your Homeowners Insurance reimburses you your loss, you can’t take the tax deduction. For more information you can contact us.
Home Remodeling that Increases Your Home Resale Value
Did you know that ANY improvements and remodeling made to your house that increase its value is tax deductible? So wait, you must be saying, then what was all that other stuff for if I can just get a deduction? Well, there are only a couple caveats. First, you will need to use the itemized deduction and not your standard deduction, so this is only worth it normally if you paid more than $12,550 (the standard deduction in 2021) for your remodeling work, which is very easy to get to if you remodeled your kitchen and bathrooms!
Examples of resale value add work includes additions, security systems, swimming pools, major landscaping, new kitchens and baths, new roof/windows, ADU (additional dwelling units/granny flats), and more. The second caveat is these get deducted also over time through the MACRS depreciation. These follow a specific schedule of depreciation which your accountant will want to know to apply all your deductions, and it usually works its course over seven years.
In conclusion, HOME REMODELING IS TAX DEDUCTIBLE. All you have to do is email or call your accountant to find out exactly how for your purposes! Most people don’t understand that remodeling is always worth it. The key is to get the right contractor and do the work right the first time.
