As a homeowner, home improvement tax credits and tax deductions are great incentives for you to complete desired upgrades to your residence and get a 'discount' while doing so. Though not actually discounts, federal tax credits or deductions basically amount to the same thing - dollar savings for qualified improvements. While many are familiar with tax credits being given for the installation of certain energy-saving systems such as qualifying furnaces, water heaters, solar panels or wind turbines, there are other types of home improvements that also carry financial incentives from the government. It's also important to note that savings on your federal income taxes may just be a part of it, as home improvement tax credits or rebates are also sometimes offered by state and local jurisdictions and even some utility companies, and these may all be used in conjunction with one another.
Credits For Energy Efficiency
For the year ending December 31, 2011, the IRS is issuing tax credits for the installation of energy efficient windows and exterior doors, although the maximum allowable of 10% of the purchase price, to a maximum of $700 ($200 for windows and $500 for doors), is significantly lower than the $1500 maximum allowed in 2010. Limitations include the following:
- Installed windows and doors must be Energy Star qualified.
- Cost of installation labor is not included.
- Items must be installed no later than 12/31/2011.
- Installation of asphalt or metal roofing.
- Adding insulation to an existing home.
- Installation of qualified HVAC systems or non-solar water heaters.
While the above listed home improvements eligible for federal tax credits ended with the close of the 2011 tax year, several more are still in place until the end of 2016. These include the installation of small wind turbines for homes, solar energy systems, or geothermal heat pumps. Tax credits for these systems are equal to 30% of the purchase price of the equipment, with no upper cost limit. These credits apply to primary or secondary residences, but not to rental homes. Full details can be found at the EPA's Energy Star website. Another helpful site that fully explains federal incentives offered and the process for claiming your tax credit is the Department of Energy's Energy Savers website.
Other Tax Deductible Home Improvements
In addition to home improvements designed to increase energy efficiency, there are two more areas where upgrades to your home could benefit you when it comes time to figure your federal tax liability. The first is a deduction allowed for home remodeling necessary as a result of a qualifying medical condition. The most common of these is when someone in your household requires the use of a wheelchair and certain alterations to the home must be made to accommodate this new condition. Needed improvements could include the addition of wheelchair ramps or an elevator, the widening of doors, installing handrails and the lowering of light switches , cabinets , or counter tops.
Other medical conditions that require special facilities or treatment areas within the home may also require home remodeling work that is tax deductible. This could include therapeutic pools, spas, or areas expressly designed for the accommodation of cumbersome medical equipment. For family members suffering debilitating allergies or breathing problems, doctors may recommend an upgrade to your home's HVAC system or the addition of air filtration equipment. This will probably also qualify as a tax deductible expense. For more details regarding this area you can check out IRS Publication 502.
Finally, home remodeling paid for through a home equity loan or line of credit may provide some tax relief as the interest paid is generally tax deductible.