How to Get Tax Deduction for Home Improvement ?
Frankly , no express law for tax deduction for home improvement exist. However, there are indirect ways by which your cost of home improvement can be deducted while computing taxable income. These are creative tax planning that require careful consideration .Here are the four such idea that you can consider
1. Do Home Improvement at Time of Acquiring it
The interest on your mortgage for acquisition of make home is allowable deduction under US Code 26. So, plan & combine home improvements at the time of acquiring the house . This will increase the cost of acquisition . So now borrow the fund for this increased cost of acquisition and voila the interest component related to home improvements will also be allowable as deduction while computing your taxable income.
2.Home Improvement for Medical Reason
Under US Code 26, if the doctors prescribes certain changes in your home environment for medical purpose or certain types of bed arrangement or equipment to be fitted in your home and for that reason you require to change in your home plan or certain improvements, then such expense are allowed as medical expense.
For example , if the house is to be modified so that wheelchair or medically approved bed prescribed by the doctor for you or dependent can move freely or easily within house , then the cost on such improvement is allowable deduction . Similarly , following types of medical expense that require some kind of home improvement are allowable:
The cost of installing entrance or exit ramps,
widening doors and hallways and
So if you borrow fund for such home improvements , interest paid on loan is part of medical cost that is allowable.
3. Tax Credits for Energy Generation
Take advantage of energy tax credits by installing qualified energy generating systems. You can get a federal tax credit of 30% of the cost of qualifying
geothermal heat pumps,
solar water heaters,
small wind turbines, or
fuel cells placed in service for an existing or new construction home.
You can use the energy credit can be used for items installed in vacation or second homes as well. Also there is no maximum limit (except for fuel cells). For example, if you purchase and install a small wind turbine for $10,000, you get a $3,000 tax credit right off the bat – not counting the future savings on your electric bill.
In order to avail this energy credit , you must have a Manufacturer Certification Statement .
4. Home Improvement for Exemption
Since, home renovations increase the cost of your home, the capital gains ( or profit on home) may just be less that $ 250,000 and thus you can claim capital gains exemption. This is available only for primary home though as per section 121 of the US Code 26.