How You Can Make Home Improvements Pay
Making improvements to your home can be a wise decision in a number of ways. You'll enjoy spending time in your refreshed home. The updates can increase the value of your house if you ever decide to sell it. But not everyone is aware of another benefit that some home improvements can offer-a home improvement tax credit that can significantly reduce your income tax bill.
Energy Smart Improvements Save You Money Two Ways
You know that installing energy efficient windows or doors, a new heating or air conditioning system, or hot water heater can lower your monthly energy bills. But you might not know that the Federal government also offers a tax credit for many energy-saving home improvements.
As part of the economic stimulus package passed in 2009, the government created the Home Energy tax credit. The credit, which reduces the total amount of income tax you pay, can be claimed on your 2010 income taxes. There is no upper or lower income limit to qualify for the credit.
Credits for Big and Small Projects
There are two types of tax credits. One applies to several common home improvements, the other to larger, more costly projects.
- Energy efficiency improvement credits: Replacement windows and doors, insulation, roofs, heating and cooling systems, corn, pellet or wood-burning stoves, and water heaters may be eligible for a tax credit of 30% of the cost (not including installation and labor) up to a $1,500 total credit. The home must be your principal residence and the improvements must be made between January 1, 2009 and December 31, 2010. The credits apply only to improvements to existing homes.
- Residential renewable energy credits: Geothermal heat pumps, solar panels, solar water heaters, small wind energy systems, and residential fuel cell and microturbine systems may qualify for tax credit of 30% of the cost with no upper limit on the credit. The systems need to be installed before December 21, 2016. The credits apply to your principal residence and any vacation homes. The home can be an existing one or new construction.
For all the details about which types of appliances and improvements qualify for the tax credits, you can visit the government's Energy Star website.
Other Home Improvements That Can Cut Your Tax Bill
In addition to tax credits for making your home more energy efficient, you may also be able to deduct a portion of the cost for other improvements. If you've had to make an improvement to your home for medical reasons, for example adding a ramp for a family member in a wheelchair, you could qualify for a deduction. There are strict rules for this type of deduction and you need a written statement from your physician saying the improvement is medically necessary. Talk with your tax advisor or the I.R.S. to find out more about this deduction.
If you use a home equity loan to finance your home improvements, you may be able to deduct the loan interest on your income taxes.
Lower Energy and Tax Bills Make Home Improvements Pay Off
If you're thinking about remodeling your home, do some research before you start your project to find out if you can take advantage of the Home Energy tax credits this year.
This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.