Improving your home can be one of the most rewarding processes…but also comes with a lot of hesitation.
A common concern amongst those improving their home is how much of a tax reduction they’ll receive in the process, as well as how to maximize their return. Although every jurisdiction is different for the type of tax laws they enable, there are some commonalities you can follow along with if you’re looking to improve your home. That’s why we decided to jot down a few of our favorite notes on home improvement projects, and what they mean to your tax liability.
Know The Local Laws For Historic Tax Credits
One of the biggest reasons why people make improvements to their house is tax credits.
A particularly lucrative option is historic tax credits, which are when people improve their historic/old homes to code of what the initial decor was. By following these rules, people can sometimes receive up to 50 percent back on improvement costs, depending on the locale. With historic tax credits, the federal government, states, and sometimes local agencies reimburse the tax amounts owed on improvements (as long as they’re approved by an agent). Check out what historic tax credits exist for your city, as these can be a significant money saver on your tax liability.
Embrace Modern Improvements Like Solar Panels
Beyond historic tax credits, there are a lot of improvements you can make to update a home while reducing your liability. In particular, one popular example is energy efficiency credits, such as putting a solar panel on a home. Not only will this help you save money on taxes as long as current tax credit incentives are in play, but through reducing your electricity bill as well. A pretty big win-win. Be sure to run your projected benefits against potential savings to see if this improvement makes sense.
Improving rental units can not only be a great way to reduce your tax liability but bring on an additional source of income from something you’re already paying into anyways.
Give Yourself More Office Space
A simple, but effective home improvement project to reduce your tax liability is giving yourself more office space. Considering that the IRS accounts for office space expenses by the square footage, it’s not a bad idea to incur some costs to improve this area, especially if you find yourself working from home quite a bit. Do the math on how much space your work can take up, highlighting what liabilities you can reduce while improving your workspace tenfold.
Consider Creating A Rental Unit
Believe it or not, converting your garage to include something like an attic apartment can actually be pretty advantageous tax-wise. Improving rental units can not only be a great way to reduce your tax liability but bring on an additional source of income from something you’re already paying into anyways. Check out what you can do for adding a rental, as the improvement will pay off dividends.
Make Sure What You Do Is A ‘Big Value’ Project
Finally, it can be easy to get wrapped up in envisioning improvements without a clear vision of what the value of a project can be. While you’re ultimately most likely to save on improvements, that doesn’t necessarily mean everything you do will have the same return in regards to ROI. Instead, divide up the numbers to see the true value, as well as how much time it’ll take versus what you’ll make long-term. Doing so can not only help to value your time better but get a more generous return in the end as well, providing a project you’re happy with for the long-haul.
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If you’re interested in doing some home improvements but want to run the numbers by someone first, don’t hesitate to reach out to the email address below for a free consultation. Not only can we get you the best value out of your tax situation, but also can help introduce you to people within our extended network.
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