Tax Breaks You Can Get for Home Improvements

by Megan WildMarch 3, 2017

Tax time is approaching fast! Homeowners should be aware they can get tax breaks for certain home improvements. If you have made these improvements this year, you can claim them on the taxes you file on or before April 18, 2017. That’s this year’s tax deadline since April 15 falls on a Saturday, and Monday, April 17 is a Washington, D.C. holiday.

If you are planning on home improvements for calendar year 2017, make note of these potential tax deductions for next year. It’s always a good idea to check with a tax professional as tax laws change frequently.

Here’s a brief description of types of tax breaks. After that, we’ll provide three tax breaks you can get for making home improvements and discuss tax-deductible financing.
tax breaks for homeowners: solar panels

Tax Breaks: Deductions Versus Credits

Homeowners should note distinctions between types of tax breaks so they understand the effect on their taxes. A tax deduction means you subtract the amount of the tax deduction from your taxable income.

Property taxes, for example, are tax deductible. If you paid $3,000 in property taxes last year, you can subtract that amount from your taxable income. This lowers the taxes you pay because your taxable income is reduced. If your taxable income is $50,000, for example, a $3,000 property tax deduction lowers it to $47,000. Assuming a 25 percent tax rate, you would pay $12,500 on $50,000, but only $11,750 on $47,000. A $3,000 property tax deduction, in other words, can save you $750 in taxes.

Tax credits, on the other hand, are subtracted from the tax you owe once it is calculated. If you owe $2,000 and have a $500 tax credit, that is subtracted from the total. You owe just $1,500.

Three Types of Home Improvements That Can Provide Tax Breaks

Generally speaking, three types of home improvements can provide tax breaks.

Medical Home Improvements

You can deduct certain home improvements made to accommodate people with disabilities or other medical conditions. If, for example, a family member needs a wheelchair, you can deduct the cost to install a wheelchair ramp. You can also deduct the cost to grade the ground for the ramp and to install necessary aids in the house, such as grab bars. Adjustments to make the home more accessible, such as lowering wall switches, are also deductible.

These costs need to exceed 10 percent of your annual adjusted gross income to be tax deductible. If you are 65 years old or older, be aware there is a medical exemption that lets you deduct total costs of more than 7.5 percent of your annual adjusted gross income.

Energy Efficiency Improvements

Several different types of energy efficiency improvements give homeowners a federal tax credit.

Under the Residential Renewable Energy Tax Credit, homeowners can receive a federal tax credit of 30 percent of the cost of adding certain types of energy generation methods to your home. They are fuel cells, geothermal heat pumps, solar photovoltaics, solar water heat, and residential wind turbines. These improvements can be retro-commissioned if you think your home is operating at less-than-optimal levels. The percentage amount of this credit changes every year, so be sure to check for next year’s taxes.

If you have installed certain products eligible for a tax break under the Residential Energy Efficiency Tax Credit program, you may be eligible for up to $500 in credits. Unfortunately, this program ended in 2016, but if you installed any of these products by December 31, 2016, you’re in luck.

Eligible products include those around the home, such as insulation, exterior doors, roofs and windows. Equipment used for heating or cooling, such as air conditioners, biomass stoves, boilers, furnaces, heat pumps and non-solar water heaters, is also eligible. The tax status of energy efficient home improvements change frequently, so it’s wise to check in every tax year.

Capital Improvements

If you made capital improvements to your home, you may be eligible for a tax break if you sold it in 2016. Eligible capital improvements are things like fixing your roof or installing new gutters.

Note that these are not tax deductible if you don’t sell your house. They only become tax deductible as you compute the total price of your house from its basis in the year that you sell it. Homeowners should save their receipts for any capital improvement to their home so the basis can be calculated when the home is sold. Standard repairs on a house, unfortunately, are not tax deductible.

tax breaks for homeowners

Tax-Deductible Interest on Financing

Finally, you can deduct the interest on certain methods of financing from your taxes.

If you took out a home improvement loan of up to $100,000, you can deduct the year’s interest. If you took out a Home Equity Line of Credit (HELOC) to make the improvements, you can deduct the year’s interest on it.

One of the joys of home ownership is the opportunity it provides for tax breaks. Be sure to take advantage of any tax credits or deductibles you are eligible for this year and in years to come.


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About The Author
Megan Wild
Megan Wild enjoys finding easy and low-stress ways to improve your home. In her downtime, she enjoys flipping flea market finds, hanging out with her dog, and writing on her home-themed blog, Your Wild Home. She's passionate about sustainability and environmentalism, and you can find her tweeting about both @Megan_Wild.

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