Are Home Improvements Tax Deductible?

Your home improvements can add a lot of aesthetic and functional value to your home, but did you know that certain home improvements can also save you some money on your taxes? It’s true!

Here’s an overview of what you should know about tax-deductible home improvements in St. George, UT.

Reaping the benefits

For the purposes of your taxes, “home improvements” are defined as being any kind of work done to your home that substantially adds to its value, increases its lifespan or adapts spaces for new uses. Some common examples of such projects include new bathrooms, additions, kitchen upgrades, new roofs, upgrades to plumbing or electricity, new insulation, new paving and enhanced landscaping.

Unfortunately, if you only use your home as your personal residence, you will be unable to directly deduct the cost of home improvements, as they would fall into the category of personal expenses. However, these improvements can cut down on the amount of tax you have to pay if you sell your home at a profit, because the costs you paid for those improvements will be added to your home’s tax basis.

The “basis” refers to the amount of investment in your home for tax purposes. A larger basis means less profit when you sell. Home improvements are perhaps the most common method of increasing that basis, but that basis will not include the costs of any home improvements that were later removed. If you installed a new roof when you first bought the house, then did so again 30 years later, you can only use the latter roof when adding the expense to your basis.

Beyond personal residence

While you cannot fully deduct the costs of your home improvement expenses, you do have the ability to depreciate them. This process allows you to deduct the expenses over anywhere from three to 27.5 years. However, this option is only available to you if you use a portion of your home for anything other than your primary personal residence.

If, for example, you use part of your home as a home office for business purposes, you will be able to depreciate those home improvement costs. But to be able to qualify for a home office deduction, the part of your home used for business must be used exclusively for business purposes on a regular basis. Just because you occasionally work from home in your dining room does not mean you’ll be able to claim that part of your home as a home office.

In addition, the extent to which you’re able to depreciate the improvements for your entire home will depend on the percentage of the home that the office space occupies. So, if the square footage of your office accounts for 15 percent of your home, you’d be able to depreciate 15 percent of the costs of full-house improvements. But if the improvements were only performed to your office space, you can deduct 100 percent of the cost of those improvements.

For more information about qualifying for tax-deductible home renovations in St. George, UT, contact Building Concepts of So. Utah today.

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