A Lincoln, NE Home Remodeler Explains the Remodeling Tax Credit
The potential cost of a home remodel can be intimidating. Luckily, a few renovation areas may be tax-deductible or will help you save money on taxes. According to TurboTax, “Renovation of a home is not generally an expense that can be deducted from your federal taxes, but there are a number of ways that you can use home renovations and improvements to minimize your taxes.”
Are your home renovations tax deductible? Answers from home remodel contractors in Lincoln, NE.
1. Energy Efficiency
Installing energy-efficient equipment in your home is not only good for the environment, but it might also be good for your wallet! Business Insider notes that if a homeowner installed equipment like energy-efficient exterior windows, doors and skylights, insulation, energy-efficient heating/air conditioning systems, or fuel cell property, they might be able to claim a tax credit on their 2020 tax return.
Tax credits work dollar-for-dollar on the taxes that you owe. This means that if you owed $3,000 in taxes but had a refundable tax credit of $4,000, you would get back $1,000. In the case of non-refundable credits, what you owed could only be reduced to $0, and you wouldn’t receive any money back. Business Insider goes on to write that, “When it comes to the Renewable Energy Tax Credit, the IRS says “energy-saving improvements” made to a personal residence before January 1, 2021 qualify for the credit, which is equal to 26% of the cost of the equipment installed.”
2. Medical Expenses
If in 2020 you needed certain medical equipment in order to improve mobility in your home, then you might be qualified for a tax deduction this year. Budget Dumpster gives a list of the improvements that are included and are considered fully-deductible, as they are not considered to add value to a home:
- Building entrance and exit ramps
- Widening hallways and doorways
- Lowering/modifying kitchen cabinets
- Adding lifts from one floor to another
- Installing support bars in the bathroom
- Modifying fire alarms and smoke detectors
A tax deduction lowers your taxable income, reducing your tax liability. You subtract the amount of the tax deduction from your income, making your taxable income lower. Keep the above in mind once tax season rolls around and take a look at our other remodeling tips for 2021.
3. Renovations for Selling
Renovating your home with the intention of selling could help reduce your taxes. According to the IRS,” If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.”
This gain is based on what you’ve invested in your home, and specific improvements, especially ones that add value to your home, could help lower your taxable gain after the sale of your home.
For more information about how renovations can help save you money in the long run, reach out to us today!