With the filing deadline approaching, what better time to think about the ways you can update your home to get a tax break? These four renovations won't only help you lower your tax bill while you're living there, but can also be huge selling points and make you eligible for further deductions when you move.
1. Energy efficient upgrades
If you remodel your home to include alternative energy equipment, you can receive a tax credit for it. Thanks to the Residential Energy Efficient Property Credit, homeowners can receive up to 40 percent of the cost of purchasing and installing this equipment, which includes solar electric systems, solar water heaters, wind turbines or geothermal heat pumps. You can also get credits for residential fuel cells up to $500 per kilowatt of energy capacity. While these updates are expensive, they can easily recoup their costs in tax credits.
If you're not able to go all out with these energy efficient upgrades, Energy Star rated appliances can also qualify you for a deduction. You can get a full list of these appliances from Energy Star's website.
2. Home office
If you use a portion of your home to conduct business, the costs to create that space can be deducted as a business expense. To cover 100 percent of these costs, though, there are caveats. You must have a legitimate business and use your home office exclusively and regularly for it. This includes renovations that benefit the home office and a portion of those that improve the rest of your house, like new heating or air conditioning.
3. Renting out space
If you rent out a portion of your home, you're also eligible for tax deductions. Any costs for renovations that improve the rented space can be deducted from taxes on the rental income.
4. A renovation that adds value
Lowering your tax bill can be as simple as adding value to your home. The IRS considers projects like upgrading plumbing or installing air conditioning as home improvements, and while their costs can't be deducted, certain expenses can lower the taxes owed when you sell your home.
For more real estate tips in Indianapolis, contact Newkirk Realty today!