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Home Improvement Tax Deduction

Scholasticus K Oct 7, 2018
With the financial year coming to a close, people start wondering about the different tax deductions they could file for. Home improvement tax deduction is one that people use while filing for their annual tax return.
The state and federal government collects a variety of taxes at the end of every financial year. The Internal Revenue Service and the United States Department of Treasury play a very important role in the collection of these taxes.
The IRS, and Treasury Department have made several provisions, and rules and regulations, in order to provide people with tax exemptions, and deductions for legitimate reasons. The home improvement tax break is a one such provision for deduction, that can be freely used by people.

Understanding Home Improvement and Tax Deductions

When elaborating on concepts related to finance, business and law, the best way to grasp the fundamentals is to simplify and sort them accordingly. Adhering to the aforementioned policy, we try to simplify the concepts in order to understand them well. Explicated herein is the meaning of home improvement, and tax deductions, respectively.

Home Improvement

The meaning of home improvement can be described as - 'beautifying and renovating your home'. It must be noted that home improvement is different from home repair. For tax deduction purposes, the IRS has systematically defined the term 'home improvement'. The IRS portal is effective if you want to know if your property qualifies for home improvement or not.

Tax Deductions

A tax deduction is exemption from a particular tax bracket, or category. This means reduction in the amount of income - for income tax, or sales - for sales tax, that is to be included in tax returns. The tax liability of a particular person, or an organization is reduced, by tax deduction. Tax deduction is often refunded by tax relief checks.

Tax Deduction Provisions for Home Improvement

A description of tax deduction is specified on the IRS.portal interface with the help of an extremely complex set of deductions. The following are some important points that have been specified with respect to such deductions. It must be noted that these deductions are included under the category of itemized deductions (as on Topic 500, IRS portal).
One must also note that standard tax deductions, and itemized deductions cannot be availed simultaneously. These deductions are often a part of depreciation reduced from an asset.
An improvement is an addition to the total value of the property, contributing to the longevity of the property in question. It is considered as an addition to the monetary value of the property, irrespective of the total home improvement costs. Tax deduction for such additions can be availed through a variety of provisions.
The IRS tax deductions become applicable for three basic types of home improvements:
  • Home improvement for medical purposes;
  • Home improvement for energy conservation, and installation of energy-efficient systems;
  • Home improvement with the help of home equity loan, or home equity line of credit.
IRS and state tax laws applies to home improvement. Sales tax deduction is, at times, considered by IRS where a property with substantial home improvement is sold.
These are some common provisions for home improvement tax deduction:
  • It lowers amount of income that is to be taxed, due to the itemized deductions mentioned in topics 501 to 515 of IRS.
  • Home improvement costs are included in asset value of the property; thus, it is subject to depreciation for the current and subsequent years.
  • While claiming tax deductions for medical facilities, the total improvement cost has to exceed at least 7.5% of the total value of the claimant's gross earnings of that year. Publication 502 specifies the deductions.
  • The laws on energy conservation utilities change every year as per the Energy Policy Act, 2005; hence, one needs to avail the income tax calculator, and tax forms to stay informed of the qualifying norms.
  • While home improvement is being considered, tax deductions would be applicable exclusively on the costs incurred for the product purchased. Remember that the costs for installation procedures conducted are not liable for any coverage whatsoever.
  • Federal government has introduced tax incentives to conciliate home improvements related with environment. Environment friendly installations need high costs. Equipping the home with solar panels and other systems have had the homeowner requiring assistance; as these upgrades need capital inputs in bulk. Thus, with tax credit assistance cover some costs.
  • The tax incentive provision made by federal government is applicable to your current residence and the new property you recently invested in. Tax incentives are not for leave and license properties. Most importantly, the federal tax incentives are applicable to the task realized up to the 31st day of December of the current financial year.
Deductions for home improvement tax are very complex. A look at the IRS forms would definitely prove useful.