It’s easy to forget about taxes right after you’ve finally completed all of those forms for 2017, but planning ahead can save you big bucks down the road. Summer is an ideal time of year to tackle home improvement projects. But before you decide which projects to take on, consider the implications those improvements could have on your taxes this time next year. Here, we’ve done the homework for you, so that you know exactly which projects will offer the greatest return.
There are two types of home improvements that can have a positive impact on your finances: energy efficient improvements, and useful improvements. Let us explain…
Energy Efficient Improvements
There are several federal tax credits available for energy-efficient home improvements. These include items such as:
HVAC equipment
The government’s 25C tax credit gives homeowners up to 10% of the cost up to $500, or a $300 max credit for qualifying central AC, heat pumps, packaged units and ductless systems. Replacing your old heating and cooling equipment with ENERGY STAR qualified equipment can cut your annual energy bill by more than $115 here in the Midwest where we see both temperatures extremes. Before investing in a new HVAC system, be sure to address any major air leaks in your house and duct system. Also, be sure to hire a pro for installation, as an improper install can reduce the efficiency of your new system by up to 30%, and even shorten the life of the equipment.
Water heaters are the second highest source of energy used in the home. According to Consumer Reports, homeowners can earn up to a $300 credit for qualifying water heaters. These include gas, oil, and propane units with an energy factor of .82 or more, a thermal efficiency rating of at least 90%, or an electric heat-pump water heater with an energy factor of 2.0 or higher. These units use less energy than standard models, so you can save money on monthly utility bills and protect the environment at the same time. Be sure to have a professional install your new water heater, regardless of the type you choose.
Windows
Replacing old windows with Energy Star certified windows can lower your household energy bills by an average of 12%, regardless of what climate you live in. And, you can feel good about reducing greenhouse gas emissions, too. Windows that earn the ENERGY STAR® rating provide a 10% tax credit up to $200 (cost of installation not included). Best of all, you don’t have to replace all of the windows in your home to qualify. Learn more at energystar.gov.
Doors
Replacing old, drafty doors with their ENERGY STAR® certified counterparts helps to keep your home’s temperature consistently comfortable. Not only can you earn a 10% tax credit (up to $500) for upgrading, but you’ll use less energy and spend less on your monthly energy bill.
Insulation
Common bulk insulation products and those that reduce air leaks, including weather stripping, spray foam and house wrap, may qualify for a tax credit of up to $500, according to Energy Star. Keep in mind that the product you choose must come with a Manufacturer’s Certification Statement.
Biomass stoves
These stoves burn wood and wood waste and residues, crops, trees, plants, and fibers to heat your home, or the water in your home. Biomass stoves that have a thermal efficiency rating of at least 75% and meet the EPA’s2020 clean-air standards can qualify for a tax credit of up to $300.
Pro Tip: Keep good records of all expenses associated with your home improvements. Save all your receipts and documents. If you purchased energy-efficient equipment, be sure to save the Manufacturer’s Certification Statement as well.
Valuable & Useful Improvements
While normal home repairs and maintenance are not tax deductible, the federal government does grant taxcredits for home improvements that substantially increase the usefulness and value of your home, or adapts it to new uses. Keep in mind that these types of deductions cannot be used until you sell your home, but they can absolutely add up, so be sure to keep clear records of all home improvements you make while living in your home. These include:
- Roof replacement
- Room addition or extension
- New bathrooms
- Decks
- Fencing
- Landscaping
- Wiring upgrades
- Walkways
- Driveway
- Kitchen upgrades
- Plumbing upgrades
Pro Tip: The federal government uses a “basis” to determine your home’s value. The greater your “basis” the less profit you’ll receive when you sell your home. So, while these home improvements don’t have an immediate tax benefit, they can help reduce the amount of taxes you’ll be required to pay if you sell your home at a profit.
Keep in mind that home improvements that were later removed from the home cannot be included in your home’s basis. For example, if you installed a chain-link fence when you moved into your home, and then replaced it with a wood privacy fence five years later, the cost of the chain-link fence is no longer part of your home’s basis.
Certain home improvement projects, such as bathroom, kitchen, laundry room and basement upgrades and additions require the help of a professional plumber. If you plan to take on one of these projects, Maplewood Plumbing can help with tasks such as cleaning floor drains, and installing water heaters, faucets, toilets, sinks, bathtubs, showers, gas lines, and standpipes. For more information on how we can help, click here.
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