Tax Break 1: Major Energy-Efficient Upgrades
This tax break can save you up to $500 on energy efficient upgrades under the Residential Energy Credits program. However, there’s a lifetime total of $500 on this tax deduction, so be sure to check that you haven’t already met this limit. This tax break is especially relevant if you’ve purchased new energy efficient replacement doors, replacement windows, or a new roof.
- 10% of the cost of replacement doors
- 10% of the cost of replacement windows and skylights ($200 cap)
- 10% of the cost of an energy-efficient roof (excluding labor)
- 10% of the cost of home insulation upgrades (excluding labor)
- $300 for a biomass stove
- $300 for air-source heat pumps
- $300 for central AC systems
- $150 for efficient hot water boilers
- $300 for water heaters
- $200 for furnaces and fans
Tax Break 2: Green Energy Upgrades
This tax break goes in the personal tax credit category. If you added a renewable energy system to your residence, you’re eligible for a 30% tax rebate for your expenditures. This applies to both main residencies and vacation homes. Some expenditures covered include the cost of on-site preparation, assembly and installation, and piping and wiring to connect a system to the home.
Here’s the best part: there’s no cap on this deduction! If you’re kicking yourself for not going green earlier, don’t worry. This tax credit is available through 2019. Here are some green energy upgrades that qualify for this tax break:
- Solar panels
- Solar water heaters
- Fuel Cells
- Geothermal heat pumps
- Wind turbines
Tax Break 3: Medical Modifications
This tax break is especially relevant to readers that have completed a bathroom renovation with Custom Bath Solutions in the past year. Medical modifications include improvements made to accommodate your home for care of a disabled individual. This person may be you, your spouse or your dependent.
Here’s the catch: the eligible cost of improvement is reduced by the project’s addition in value to your property. So if you spent $40K on medical modifications that increased the value of your home by $10K, only $30K are deductible. If the home improvement project did not increase your property value, the entire cost can be included as a medical expense. In addition, the cost of medical modifications must be more than 10% of your adjusted gross income (or 7.5% for persons 65 and older).
Here are some medical modification projects that qualify for deductions:
- Lowering or modifying kitchen cabinets and equipment.
- Installing railings, support bars, or other modifications (like a tub to shower conversion) in your bathroom
- Replacement doors and modifying door hardware
- Modifying electrical outlets and fixtures
- Widening interior and exterior doorways
- Entrance and exit ramps
- Installing lifts or modifying stairways
- Modifying fire alarms, smoke detectors, and other warning systems
- Grading the ground to provide access to the home
Tax Break 4: Reduce Your Capital Gains Profits
In the eyes of Uncle Sam, that is. We would never advise you to sell your home for less than it’s maximum potential. If you make a profit on your home over $250K per individual (or $500K as a married couple), you’ll have to pay capital gains taxes on those profits. However, you can deduct the money you spent on value-adding home improvement projects from your total sales profit.
Let’s say you purchased a new home 7 years ago for $250K and then spent $60K on renovations. This year, you sold your home for $560K and put away your sales profit of $310K. If you don’t include the cost of renovations in your total profit, you can lower your taxable capital gains profit to $250K and keep that $60K you spent on renovations, tax-free.
For your home improvement project to qualify for this tax break, the project had to be an upgrade that increased the value of your home. Repairs projects are considered only “maintaining” the current value of your home and are not eligible to deduct from your total capital gains profit. Here are some projects that are eligible:
- Renovating a kitchen or bathroom
- Replacement windows and doors
- Replacement roofing
- Adding a deck
- Adding a wet bar (a bar equipped with running water and a sink)
- Putting in a new HVAC system
- Finishing a basement
- Building an addition on your home
- Adding a hot tub
For the nitty-gritty details, talk to a tax advisor about which tax strategy is right for you. If you’ve purchased tax credit eligible products from us in the past year, we will be happy to send you a letter confirming your installation. Just call (309) 717-0105 and we’ll be happy to help you in any way we can.