Paying taxes is a good thing as it drives the country’s economy forward. However, it can also turn into a menace if you are not careful while saving taxes where you can as authorized by Government rules and regulations. Taxes on the property that you own is one big part of your annual expenses that need to go in the book. Therefore, you need to be careful so you only pay that is due as a single extra percentage can cost you a lot. In this scenario, you can use home improvement to save your taxes. However, there is a downside to this. You cannot use home improvement to save annual taxation but can do only at the time you sell your house. Furthermore, you can check out all the latest news and views of taxation and capital gain tax by logging on to loews.com.
This is explained by the example below:-
“Susan has bought a house for $100,000 and sells it for $200,000. The net tax she has to pay is on the capital gain which is ($200,000 - $100,000) $100,000. However, is she has the bills for a bathroom renovation which amounts to $15000 then her base cost will be $115,000. Therefore, the gain tax now she has to pay is ($200,000 - $115,000) $85000.”
Kinds of Renovations
It should be noted that all kinds of home improvements do not fall under the example given above. Any kind of repair made to correct a faltering part of the house is not considered a home improvement but a repair that is not exempted as a taxable activity. However, if you add a room, a bathroom or a garage to the house, it is considered as a tax exempted home renovation. You can also carry out the replacement of
In basics, any kind of addition to the house can be used to save take whereas a repair cannot be done for.
However, apart from core home installation, there are other methods as well by which your home taxes can be reduced. They are explained in detail below for better understanding. Furthermore, you can take up loans for home renovation which can also exempt your taxes. Find out more about how to get a favorable loan for home improvement on one of our previous blogs. Let's walk through the other tax-saving methods now:-
One of the clever ways of doing so is by rolling your home improvement budget into the mortgage when you purchase the house. This makes the house expensive when you buy it and hence lesser capital gain tax when you well it.
You can get a onetime 30% tax reduction credit on energy-efficient fixtures that you install in your house. This 30% applies to the cost of the item as well as installation costs that occur. You can also take a nonbusiness energy property credit for installing home insulation, replacing exterior doors or replacing a furnace, among other items. The credit is 10 percent of the cost, with a maximum of $500 from 2006 to the present. You can get all kinds of energy-efficient fixtures from 1stoplighting.com.
A majority of the most valuable home improvements are centered on the exterior of your property. This includes the addition of a garage, a room or even a bathroom. What makes these improvements such value drivers is that they have the biggest returns—meaning you recoup the most amount of money in direct comparison to what you spend. You can get all kinds of bathroom fixtures from modernbathroom.com like the Americh Bahia 7147 Tub.
Another clever way of saving taxes on your home improvement is by dedicating a portion of your home as your office which makes the home renovation cost as a business expense. This cost is for repairs as well so if you fix the wiring on a burned-out light fixture—that repair is deductible as a business expense. As it stands, you can deduct 100% of the money you spend on making repairs to your home office, though again, to do so you must meet the standard qualifications for the home office deduction. However, if the office comprises 20% of your home area then you get a 20% tax benefit. Although, adding rugs to the office can also be an expense that you can add to the over office expense. Get one of the special rugs from rugsource.com.
If you rent out a portion of your home then you can take advantage of all of the tax deductions available to landlords, and this includes home repair deductions. This is true even if the repairs you make are for the benefit of your entire home, and not just the part of your home that you rent out. These deductions can get a little bit tricky since any repairs you make mustn’t qualify as home improvements.
Whether it’s a capital improvement or a home office or rental based tax deduction, you want to make sure you do things right to get your money back. And the best way to do that is to make sure that you safely store all receipts related to associated expenditures, and that you keep them organized so you can easily pull them out when you need them. This is especially true for capital improvement gains, since it may be many years before you get the tax benefit. The better records you keep, the easier time you’ll have when it comes to qualifying your deductions with the IRS.