Search
News You Can Use

Make any home improvements last year? You could get a tax break

SHARE THIS STORY

Credit.com

If you made any home improvements in 2016, you may be eligible for a tax break or two. Certain home improvements — or certain lines of credit that can be used for home improvements — qualify for a deduction or tax credit from good old Uncle Sam.

As you prepare your taxes this year, here are a few credits and deductions to keep in mind.

4 home improvements that may qualify for tax breaks

1. Home improvement loans

You probably already know that your property taxes are (usually) tax-deductible, but you can also deduct the interest on a home improvement loan. The interest can be fully deductible up to $100,000, according to the IRS. Similarly, it’s also possible to deduct the interest you pay on a home equity line of credit (HELOC) in most circumstances.

2. Increasing energy efficiency

Making a home greener offers multiple incentives, including decreased energy costs and tax credits from federal, state and local governments. As noted by EnergyStar.gov, examples of improvements and equipment included in the federal tax credit group are:

Biomass stoves: About $300 credit for units with a thermal efficiency rating of 75% or more

Air source heat pumps: $300 credit

Central air conditioning: $300 credit

Gas, propane, or oil hot water boilers: $150 credit

Gas, propane, or oil furnaces and fans: $150 credit for furnace, $50 for main air-circulating fan

Insulation: Up to $500 or 10% of the cost, whichever is lower

Roofs: 10% of the cost up to $500

Non-solar water heaters: $300 credit

Solar water heaters: 30% of the equipment and installation costs with no cap on amount

Windows, doors, and skylights: 10% of the cost up to $200 for windows and skylights; up to $500 for doors

Geothermal heat pumps: Up to 30% of equipment and installation costs

Small residential wind turbines: 30% credit

Residential fuel cells: 30% of the equipment and installation costs with no cap

3. Medical home improvements

Improvements made for you, your dependents or your spouse can qualify for tax deductions if they help a person in a wheelchair or with a disability. These deductions must be itemized and cost more than 10% of your adjusted gross annual income. There is also currently an exemption that allows people 65 and older to deduct total medical expenses exceeding 7.5% of their adjusted gross income through tax year 2016.

As outlined by the IRS, examples of medical expenses include:

Making the home wheelchair accessible with entrance and exit ramps and widened doorways

Grading the ground for entrances

Moving or modifying electrical outlets

Lowering or modifying kitchen cabinets and appliances

Installing railings and lifts

Adding grab bars and handrails

4. Capital improvements

Were you getting your home ready to sell? Some repairs can qualify as capital improvements. These include:

Replacing the roof

Replacing windows, gutters and doors

Replacing the furnace or HVAC system

Tax credits and deductions can help make certain improvements more affordable, but you’ll still want to carefully consider your funding, if you’re facing (or longing for) a major renovation.

Cash is the “thriftiest” way to pay for home improvements, according to the U.S. Department of Housing and Urban Development (HUD), since you won’t be paying any interest or fees. But, if you find yourself facing emergency repairs or need some liquidity to get a carefully considered project completed, homeowners can use financing methods such as:

Mortgage refinancing: This may be a wise option if you can qualify for a lower interest rate and the numbers work out in your favor. Be sure you know where your credit stands before you apply, as this will determine whether you qualify — and what rate you’re offered.
Federal Housing Administration loans: The FHA provides two types of loans for home improvements. The 203K loan is usually used to buy a home that needs extensive repairs, while the Title 1 loan provides up to $25,000 and is not contingent on the homeowner’s equity. (You can find a full explainer on FHA loans here.)
Credit cards: Using credit cards can be another helpful way to cover expenses, especially for smaller home improvement projects. Some homeowners try to get the most benefits by using a rewards card or 0% introductory APR credit card. But remember: Swiping more just to earn the rewards or without a plan to pay those purchases off in full as soon as possible could land you in debt.

Of course, you’ll want to come up with a plan to pay back any type of financing you take on — and be very careful not to overextend yourself when it comes to renovations. (Granite countertops, for instance, are certainly appealing in theory, but their sheen can wear thin if you can’t actually afford the expense.)

Remember, too, there are other ways you can potentially drive down the costs of home repairs. Here are more tips for working some sorely-needed home improvements into your budget this year.

Share on Facebook
Share on Twitter
Share
Share