Don't miss out on home improvement tax deduction
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When it comes to home improvement tax deduction it is important to make a distinction between home repair and home improvement. This is because home improvement qualifies for tax rebates but home repair does not.
But before you debate whether to spend on home improvement or not, it may be a good idea to know what constitutes home improvement. Home improvement is any addition that adds to the life and quality of your house. This would include adding a fence, driveway, new room, swimming pool, garage, porch or deck, insulation, new heating/cooling systems, a new roof or landscaping. You can consider this as a capital expense.
Now let's consider home repair. Home repair is decidedly different from home improvement. It is something you do to arrest the decay of your property.
Repairs remedy an ill. You cannot therefore use this expenditure to get a tax benefit.
What constitutes home repair? Repainting, any sort of fixing, repairing leaks, and replacing broken fixtures constitute home repairs. There is a clause here, however, which says that if you were remodeling your house, that is doing a whole lot of things to improve it, and if you were to simultaneously carry out some repair alongside, then it is possible to show the whole thing as home improvement. In effect the next time you want to add a room to the house, remember to repair that leaking roof too!
A god time to go for home improvement is when there is a drop in the interest rates. This is the time when you too can go in for refinancing to get the benefits of the lower rates. If you do so and use the proceeds of your new mortgage to finance a home improvement spree then, you can deduct the loan points in the year you refinance. If you do not use the proceeds of a refinance to improve
your house, the points are deducted over the life of the loan.
On the other hand, if you use only a portion of the loan you have taken, then the deduction is proportional. The remainder is deducted over the life of the mortgage. You must also remember that points which are not deducted by the year the loan is paid off are usually cent percent deductible in the payoff year.
So in case you want to improve your home, do so by all means…just know what you can deduct and what you cannot. It will be in your interest.
Written by: the Editor
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