Understanding Tax-Deductible Home Improvements
Are you a homeowner looking to make some upgrades to your property? You might be wondering which home improvements could potentially save you money on your taxes. While most home improvements aren’t tax-deductible, there are some exceptions that could benefit you on your 2020 tax return.
Energy-Efficient Upgrades: A Smart Investment
One of the most significant tax benefits for homeowners in 2020 relates to energy-efficient improvements. On a 2020 tax return, homeowners can claim a credit for 10% of the cost for qualified energy-efficiency improvements, as well as the amount of energy-related property expenditures paid or incurred during the taxable year. However, it’s important to note that this credit is subject to an overall limit of $500.
Some examples of qualifying energy-efficient upgrades include:
• Installing energy-efficient windows and doors
• Adding insulation to your home
• Upgrading to an energy-efficient HVAC system
• Installing a solar water heater
Home Office Improvements: A Potential Deduction
With more people working from home than ever before, home office improvements have become increasingly relevant. If you use a portion of your home exclusively for business purposes, you may be able to deduct certain expenses related to that space.
Deductible home office improvements might include:
• Installing new lighting
• Adding built-in shelving or storage
• Upgrading electrical systems to support office equipment
• Improving ventilation or climate control in the office area
Medically Necessary Home Modifications
If you or a family member require home modifications for medical reasons, these improvements may be tax-deductible. The key is that these modifications must be deemed medically necessary by a healthcare professional.
Examples of potentially deductible medical home improvements include:
• Installing wheelchair ramps
• Widening doorways for accessibility
• Adding handrails or support bars
• Modifying bathrooms for increased safety and accessibility
Rental Property Improvements
If you own a rental property, the rules for tax deductions are different. Many improvements made to rental properties can be deducted as business expenses, either in the year they’re completed or over time through depreciation.
Some examples of potentially deductible rental property improvements are:
• Replacing flooring or carpeting
• Updating kitchen appliances
• Repainting the interior or exterior
• Installing new roofing or siding
Record-Keeping: The Key to Maximizing Deductions
Regardless of the type of home improvement, it’s crucial to keep detailed records of all expenses. Save receipts, contracts, and any other relevant documentation. This will not only help you accurately claim deductions but also provide necessary evidence in case of an audit.