One of the biggest questions that often arise with regard to making home repairs and home improvements is whether they are tax deductible or are eligible for a tax credit.
There is a big difference between making home repairs to items around the house, and in executing projects which are considered home improvements. Fixing things around the home which are broken or worn out are most commonly considered home repairs, and as such do not count towards tax deductions or tax credits. However, replacing something that is worn or broken with something new that is more energy efficient may be seen as a home improvement and can contribute to a tax refund.
A home improvement project may be eligible for a tax credit or tax deduction if it falls within one of the following three categories.
- Home improvements are performed for medical reasons (adding wheel-chair access, improving filtration systems, adding hot water spas for physical ailments, etc…)
- Home improvements include energy-efficient upgrade to the home (energy-efficient windows, doors, adding insulation, upgrading roof, installing solar panels or wind energy systems, etc…)
- A home equity loan or home equity line of credit are being used to pay for the home improvements
It is not always easy to tell the difference between a home repair and a home improvement, and each home-owner’s situation is looked at individually at tax-time. But oftentimes, repairs which are made right alongside these types of home improvements can often be considered a part of the home improvement and can be eligible for home improvement tax deductions or home improvement tax credits. While a tax deduction lowers the taxable income amount, a tax credit takes a set amount off the taxes which are owed. Each offers its own pros and cons, but both get home-owners much-needed relief at tax time.
It is important to speak with a qualified financial expert before starting a home improvement project, in order to do it properly, allowing that as much as possible of the project is eligible for a credit or deduction.
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