Many people view home improvement projects as a way to spruce up their homes, but there are other benefits, such as reducing your tax burden. Here are some tips on how home improvements can help with your taxes:
1. Review your tax situation
The first step is to ensure you understand your specific situation and what changes could be made to improve your taxes. This includes understanding the difference between deductible and non-deductible expenses and knowing what tax credits are currently available. Unfortunately, taxes increased for many Americans in 2023, making it difficult to put money away for home improvements. However, savvy homeowners that pay attention to new laws, like President Biden’s Inflation Reduction Act, can maximize their deductions and ensure they get the most money back.
2. Invest in home improvements that can help you save money on your taxes
Some of the best tax-saving investments include exterior renovations such as painting or replacing roofs or updates like adding a new kitchen or bathroom. Improving energy efficiency can also save you money on your monthly bills. Thanks to the Inflation Reduction Act, many new green energy tax credits are available to homeowners looking to improve their home’s efficiency.
But it’s absolutely critical you understand which parts are eligible for the Nonbusiness Energy Property Credit before making any plans. Changes to windows, skylights, exterior doors, and insulation are all eligible. You can also claim partial credit for energy-efficient appliances like central air conditioners, water heaters, furnaces, and electric panels.
Things like paint or furniture are rarely eligible for any sort of tax credit. Consequently, you need to consider your improvements’ true cost before looking into something like furniture financing options.
3. Maximize the deductions that apply to you
There are a number of different deductions that may apply to you, depending on your specific situation. These include state and local taxes, mortgage interest, property casualty and theft losses, and more.
4. Compare home improvement financing options
There are many different home improvement financing options available to homeowners. Some lenders offer fixed-rate loans, while others offer variable-rate loans that can adjust based on market conditions. There are also options like home equity loans and lines of credit that allow you to borrow money against the equity in your home. Again, consider what you’ll be paying for and how it can affect your eligibility for tax credits. Home improvement loans can be used to fund your furniture purchases and energy-reducing upgrades, but that doesn’t mean 100% of your costs will be paid back in tax credits.
5. Claim your credits early
Some parts of the Nonbusiness Energy Property Credit will have more stringent requirements beginning in 2027. Furnaces and boilers specifically will need to meet a higher standard to be eligible for tax credits, so jump on making eligible improvements now to cut the potential red tape later.
6. Consider the additional benefits besides tax credits
Whether or not you’re eligible for new tax credits, you should still consider the upside of making home improvements. Not only will your home look nicer, but you might also experience other benefits, such as higher resale values, lower monthly energy costs, and increased living space. Many homeowners also find that their quality of life improves due to these upgrades.
The bottom line
Home improvements can help you save on your taxes thanks to new tax credits in the Inflation Reduction Act, but it’s important to review your specific situation and choose home improvements that will help you save the most money. By following these tips, you can maximize the benefits of making home improvements while reducing your overall tax burden.