Whether we like it or not taxes have been and will continue to be a factor in our income and purchasing decisions. For St. Louis and St. Charles County, Missouri homeowners, taxes additionally have implications on our decisions to make home improvements and remodel our homes. How much impact? We’ll explain.
First you need to know the difference between a home repair and a home improvement. The IRS defines a repair as anything that's necessary to keep your home in good condition but doesn't necessarily add to its value. An improvement is anything that prolongs the useful life of your home and has the potential to increase its resale value. Your project needs to be considered a home improvement in order to take advantage of available tax perks. Be sure to consult your trusted tax advisor for tax advice regarding a specific project as not all home improvements are tax deductible.
Here are some of the home improvements that do have tax perks:
|Pictured: solar panels and solar water heater.
Solar water heaters and solar panels can still be claimed for a tax credit through 2021. The tax credit is currently 30% and includes the cost of installation. In 2020 the credit decreases to 26% and in 2021 it will be 22%. So if you are thinking of making solar upgrades it is best to do so sooner to claim a higher tax credit for the improvement.*
Modifications for Medical Necessity
Home improvements that are made to accommodate a medical disability may be deducted on your taxes. Some of the items covered include: adding handrails or support bars, widening doorways, adding a wheelchair ramp, and installing lifts. However to receive the tax perk for these upgrades you must itemize deductions instead of claiming the standard deduction. Talk to your tax advisor to determine if modifications made for medical necessity in your home are eligible for tax perks or refer to IRS Publication 502.
Selling a HomeHome improvements can decrease that amount of capital gains taxes when you sell a home. Capital gains are a type of tax levied on capital assets including investments and real estate when those investments are realized or sold. (Note: this doesn’t affect everyone. Individuals can exclude up to $250,000 of capital gains from the sale of their primary residence or $500,000 for a married couple). Increasing your adjusted cost basis, what you paid for the home plus costs incurred including home improvements, can reduce this tax. Be sure to keep receipts and paperwork from home improvements you make to increase your adjusted cost basis when you're ready to sell. As with the above, be sure to consult your tax advisor regarding capital gains taxes.
When you are ready to sell a St.Louis or St. Charles County area home, contact The Boehmer Team. We will help you achieve the maximum value for your property. We have over 55+ years of combined experience helping homebuyers and sellers. We’ve seen thousands of different situations and helped negotiate for our clients’ best benefit. Give us call or check out our website for more information about all that we do.
* Visit energystar.gov for requirements and additional information on tax credits for solar upgrades.
* Information herein is not legal tax advice. Please consult your tax advisor for specific tax information.