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Maximize Your Tax Savings with Home Renovations and Upgrades!

Vicki L. Thiessen

Vicki found her start in real estate in 2005...

Vicki found her start in real estate in 2005...

Apr 4 4 minutes read

Tax season is upon us—a time that often brings stress and uncertainty. However, if you're a homeowner who tackled renovations or upgrades last year, there's a silver lining: potential tax savings await you. Depending on the nature of your projects, you could qualify for significant deductions or credits.

Let's delve into the essentials of deducting home renovation and upgrade expenses. Remember, it's advisable to consult with a tax professional to ensure you maximize your savings without missing out on valuable opportunities. According to Shatonya "Rosie" Thomas, CEO and founder of Thomas Financial, many taxpayers inadvertently overpay each year by not leveraging available deductions to the fullest.

1. Energy-Efficient Upgrades: A Path to Tax Credits 

While the IRS might not green-light deductions for lavish kitchen remodels or deluxe bathrooms, energy-efficient upgrades offer a promising avenue for tax relief. "The Energy Efficient Home Improvement Credit at the Federal level provides incentives for homeowners investing in energy-efficient enhancements," explains DR Richardson, co-founder of Elephant Energy. "Beginning in tax year 2023, homeowners became eligible for tax credits to offset the costs of such upgrades." Examples include insulation, heat pumps, and heat pump water heaters.

2. Cosmetic Home Upgrades and Deductions 

Although cosmetic upgrades typically don't qualify for deductions, certain exceptions exist. Installing a skylight, replacing drafty windows, or upgrading your front door for improved energy efficiency could make you eligible for tax credits.

3. Limits on Deductions 

Like most tax deductions, there are caps on these upgrades. Richardson notes, "Energy efficiency credits are capped at $1200 per year, while heat pump and heat pump water heater credits are capped at $2000 per year." However, there's no lifetime limit, allowing you to apply for eligible expenses annually. These credits are often structured as a 30 percent credit with a maximum cap.

State-specific deductions may also be available, depending on your location.

4. Decorating and Tax Deductions 

While decorating expenses are rarely deductible, exceptions exist for business-related decor. Thomas emphasizes the importance of clearly defining the purpose of decorating to ensure tax deductibility. Furniture and decor in a home office, including desks, chairs, or artwork, may qualify as deductions if they're directly related to business activities.

5. Small-Scale Renovations: Potential Deductions 

Even small-scale renovations, such as custom cabinetry for organizational purposes, could be tax deductible. It's crucial to retain all receipts and inform your accountant of these expenses.

In conclusion, homeownership presents opportunities for substantial tax savings through strategic renovations and upgrades. By understanding the nuances of tax deductions and credits, you can make the most of tax season and keep more of your hard-earned money.

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