In the past year, have you made any changes to your home? Those upgrades might qualify for tax credits so you should learn how to cash in on these benefits.
Here are several home improvements that could make a difference on your tax bill this year.
Tax breaks for energy efficiency
Certain energy-efficient upgrades can get you tax breaks. The Nonbusiness Energy Property Credit is worth up to $500 and should be claimed on your 2013 tax return.
You file the Form 5695 to take advantage of this opportunity. There’s a credit valued at $150 for a high-efficiency furnace or boiler. You can claim $300 for an air conditioner, HVAC system, or heat pump upgrade.
Replacing the windows is valued at $200. These credits are only available for your primary residence.
Modification for a loved one
If you have modified your home to make the space more comfortable for a loved one, that might be deductible from your taxes. This deduction might qualify as a medical expense.
The qualified medical expense must be justifiable as necessary and appropriate for the condition or illness. The improvements should be reasonable.
Upgrade your home with solar panels
This benefit is for new construction and existing homes where solar panels are installed. You can take advantage of this credit valued at 30 percent.
There is no maximum limit for this particular credit. The credit can be counted toward labor and installation. The caveat is that the credit must be deducted during the year the project took place. The option is available through December 31, 2016.
Build a home office
If you build a home office, it can qualify as a deduction. The office has to be used primarily for business purposes. There must be a legitimate business in operationvin order to claim the available deduction.
You can collect up to 100 percent for this project. You can also assign a percentage of your home as business and capitalize off this deduction. If 45 percent of your primary place of residence is used for business, you can deduct that from your return.
How do I know if it’s a home improvement or a repair?
The general rule of thumb is that a repair is done to make the home suitable to continue living in as a primary residence. If the repair extends the life of the property, this is viewed as an improvement that is not eligible for a credit or a deduction.
Property improvements that change the purpose of the room altogether are no longer considered improvements that are deductible. If it adds significant value to the home, then it’s regarded as a simple home improvement project.
Adding bathrooms and finishing spaces may add living space to the home, but the investment can only be recouped in the form of sale. If no sale is made, then it’s generally hard to capitalize on any home improvement if it’s not related to operating a business or energy efficiency.
You might consult with a tax professional to discuss the ins and outs of real estate as it pertains to deductions and tax breaks.