Inside The House

Home Improvements You Made in 2016 Can Get You a Tax Break

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 few of credit and deductions to keep in mind.

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.

Making Your Home Energy Efficient

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

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

Capital Improvements

Were you or are you getting your home ready to sell?  Some of the repairs that can qualify as capital improvements include:

  • Replacing the roof
  • Replacing windows, gutters and doors
  • Replacing the furnace or HVAC system

Financing Home Improvements in 2017?

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:

  1. 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.
  1. 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.
  1. 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 afford the expense. Remember, there are other ways you can potentially drive down the costs of home repairs.  Our next post will provide you with some tips for working some sorely-needed home improvements into your budget in 2017.

 

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