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Your Home, Your Taxes
Resources Your Home, Your Taxes
The New Year has arrived and you may be looking for ways to make improvements in your life, from getting fit to reexamining your finances, to tackling that much-needed remodeling project. If you’re planning to make any improvements to your home this year, check out these important tips about home upgrades and their tax implications.**

Repair vs. Improvement: What’s the Difference?

In order to take advantage of tax breaks associated with home renovations, it’s important to know the difference between a repair and an improvement. The IRS defines a repair as anything that’s necessary to keep your home in good condition but doesn’t necessarily add to its value. An improvement is anything that prolongs the useful life of your home and has the potential to increase resale value. Your project needs to fall under the HOME IMPROVEMENT category to qualify for tax perks. Learn more by reviewing IRS Publication 523 or reaching out to your tax advisor.

Even if your project qualifies as a home improvement, it may not necessarily be tax deductible. Let’s consider a few possible exceptions:
  • Solar Energy Upgrades: While tax credits for most energy efficiency upgrades expired in 2016, you can still claim a tax credit for solar water heaters and solar panels through 2021. The tax credit is expected to decrease each year from now through the 2021 deadline, so if you are thinking of making solar upgrades, do so sooner rather than later to claim the higher tax credit. Visit energystar.gov or reach out to your tax advisor for requirements and more information.
  • Medically Necessary Modifications: Renovations that are made to accommodate a medical disability can typically be deducted on your taxes. Examples include adding a wheelchair ramp, widening doorways, adding handrails or support bars and installing lifts. There are limitations, and you must itemize your deductions instead of claiming the standard deduction, so be sure to discuss with your tax advisor. You may also check out IRS Publication 502 for more details.
Think you’re ready to sell?
If your home increases in value (through appreciation or upgrades) and you turn a profit when you sell, that profit – known as capital gains – will be taxed. However, you can reduce the amount of capital gains taxes you owe by increasing your adjusted cost basis (what you paid for the home + any costs incurred for improvements, etc.). A higher adjusted cost basis means a lower capital gains tax, so be sure to keep receipts and documentation for home improvements you make to increase your adjusted cost basis when you’re ready to sell. Contact your tax advisor for more information.

**The information shared in our series is solely informational and we encourage you to contact your tax advisor/tax professional for advice and guidance.