When you invest in updating your home, you can end up with a place that feels like a new lease on life. Whether it’s adding a bedroom, tearing down walls to create an open floor plan or adding a new bathroom and kitchen, home improvements give you something in return a place that is more functional, more beautiful and a happier place to call home.
However, when it comes to tax returns and accounting for these expenses, not all home improvement projects are created equal. Depending on the scope of your project and the details of your renovation costs, you might be able to deduct some or even all of them from your taxes.
Here’s what you need to know about how to write off a home improvement blog on your taxes as well as recordkeeping tips that will help save you money come April time.
What You Can And Cannot Deduct
Every deduction you claim on your taxes has an impact on your bottom line. The key is to make sure that you are claiming deductions that are allowed by the IRS. This means that they fit into specific categories as prescribed by the Tax Code. If a deduction doesn’t fall into one of the following categories, it may not be allowed. These include:
– A capital expense: If you are making a one-time purchase that has a lifespan of more than one year, the expense is most likely a capital expense. These deductions are not allowed on your taxes because the IRS taxes the profit you made on the sale of your home.
– A personal expense: If you are attempting to deduct something that is not related to your home or your profession, the deduction is not allowed. This would include the cost of going to the gym or paying for an individual health insurance plan.
Recordkeeping For Tax-deductible Home Improvements
If you are claiming a home renovation project as a tax deduction, you have to keep excellent records. This includes photos of the work before and after and the name of the contractor that you hired to do the work. Keep a separate bank account for the funds associated with this project and for any payments you make for materials or services.
When it comes time to report your deductions on your taxes, you will need to provide the name of the bank, the account number and the date that the funds were deposited. Keep a record of the date that you signed the contract with your contractor and the amount that you paid for materials.
Eligible Home Improvement Tax Deductions
As we’ve covered, not all home improvement projects are created equal. Some of the more common home improvement projects that can be written off on your taxes include adding a bedroom, tearing down walls, installing a new bathroom or kitchen, adding or expanding a deck or patio, replacing flooring, repairing or replacing roofing or doors, repairing or replacing siding and repainting your home’s exterior or interior.
Keep in mind that each state may have its own set of rules and regulations when it comes to what is and isn’t tax-deductible as a home improvement. So, keep an eye out for this information as you’re keeping track of your home improvement project costs for the year.
Recordkeeping For Eligible Tax Deductions
Along with keeping track of your home improvement project costs throughout the year, you’ll also want to keep documentation of your project’s progress. This documentation can include photos, receipts, and invoices from contractors, blueprints, and any other relevant information.
You’ll want to keep this documentation along with your other home improvement project costs and track them in the same place.
This will make it easier for you to find them and turn them into income tax time. For example, you can keep your tax-deductible home improvement records in a folder, notebook or even on an external hard drive or flash drive.
Nondeductible Home Improvement Costs
While you can write off some home improvements on your taxes, not all are tax-deductible. Common examples of nondeductible home improvements include the addition of a swimming pool, a new deck or patio, or landscaping.
You’ll also want to keep an eye out for any potential scams while you’re out tracking your home improvement costs and progress.
For example, contractors can take advantage of homeowners during the busy home improvement season. This can include overcharging for materials or advertisements and even falsifying records.
Home improvements can be an excellent way to add value to your home, increase your property’s resale value and even improve your health and happiness. However, when it comes to taxes, not all home improvement projects are created equal.
Keep in mind that if you plan on claiming any home improvements on your taxes, you’ll want to first keep track of your expenses throughout the year as well as document the progress of each project.
By following these steps, you can ensure that you’re getting the most out of your home improvements and saving money on your taxes.