Is now the right time to build an addition to your home with mortgage rates on the increase and the real estate market facing high demand and low inventory for existing home sales. Why are you going to build an addition to your home? This is an obvious question that every homeowner should think about before starting on a home addition project. Everyone has different reasons to make an addition. Maybe you need more living space, have a growing family, or you want to add value to your home.
A home addition is an investment, whether you want to add a small deck or patio or do a full-blown second floor. There are some things to consider:
- Ensure that you have the space that the new addition will fit in with your current floorplan, lot size and conform to local ordinances.
- Hire a licensed architect, contractor to get the project started on the right foot.
- Consider the cost of construction materials, long-term maintenance, and the overall equity & value that will be the outcome.
Finding a reputable remodeling company
When you have decided to build an addition, your next question would be, “how can I find the right remodeling companies near me?” Remodeling companies can help you visualize your addition plan. They can guide you every step and help you see what the finished space will look like.
Choosing the right home addition remodeling companies can be a daunting task. Each may have different styles, prices, and certifications. Here are tips for selecting a remodeling company:
- Word of mouth referrals is the most effective way to find the best remodeling companies. Talk to neighbors, family, and friends who have jobs done by remodeling companies. They will recommend the company to you if they are happy with the job.
- Check if the company holds the required licenses and accreditations from professional associations like the Certified Graduate Remodeler, the National Association of the Remodeling Industry, the National Association of Homebuilders, etc. You need to know you are buying services from a company that’s qualified and experienced in home remodeling.
- Check some of the past projects of the company. You can also call former customers and ask them about the company’s performance in the remodeling project and if they would recommend the same company.
Choosing the right contractor for your home addition
It’s important to choose the contractor carefully because they are the ones who will build your addition. If you are skilled, you can choose to work on the project and get some help from experienced friends or hire professional contractors to do the work.
Use the same tips as choosing the home remodeling companies by asking for references and referrals and checking their credibility. Double-check that the contractor is insured and licensed to avoid any issues on liability, tax, or quality later.
Get several bids and proposals from different contractors and evaluate the proposals thoroughly. Meet up with the potential contractors and tell them your wants and expectations. Don’t be scared to ask questions because these people will work with you for the next few weeks or months. When you have chosen, get everything in writing and cover everything, including deadlines, the scope of work, payment terms, and warranties. You can also check online ratings and customer feedback of different contractors.
How much does a home addition actually cost?
The cost of building a house addition is one of the most important things to consider. The total cost will vary between each homeowner and will depend on several factors, including the following:
- Type and size of the addition. Are you adding an entire second floor or a wing? A room or garage? A patio or a kitchen?
- The material you want to use can affect the house’s cost. For example, if the house has wooden floors and vinyl siding, you must match the original materials.
- Where are you located? The labor costs and materials could also be affected by your location. House additions and remodeling cost much more in the city than in rural areas. While home additions are not cheap, they are still more inexpensive than buying a new house or moving to a new location.
Average costs for adding an addition to your home
Typically, home additions are priced per square foot but calculating the cost per square foot is not always accurate. You may need the professional estimates of a home remodeling company customized to your needs.
According to the Remodeling 2022 Cost vs. Value Report, the average bathroom addition cost ranges from $64,000 to $114,000 for mid-range to upscale. Adding a deck to your house would cost about $24,700, while an upscale master suite addition would cost about $357,000. A kitchen remodeling project could cost from $25,000 for small and minor work to as high as $150,000+ for major or upscale remodeling. Simpler additions can be cheaper, but the bigger and more elaborate the project, the higher the cost.
If you plan to add a second floor to your home, be prepared to spend more because it would cost like building an entirely new home from scratch.
Also, remember that additions require more fixtures like electrical and plumbing. A bigger house also means an increase in your annual tax bill. Make sure that you plan ahead of time and create a budget. Housing additions that are haphazardly designed might cost you more and end up with you having to need financial assistance like taking out loans.
Tips to save on the costs of home addition
A home addition requires an investment of your time and money. If you don’t pay close attention to your budget, you might have to spend more or end up with an unfinished addition if you run out of money. Here are some ways to save on the costs of addition:
- Shop around for the most reliable home addition remodeling companies near you.
- Take advantage of rebates and tax refunds by building energy-efficient additions
- Use less expensive materials.
- Convert an existing space in your house and remodel it instead of building a new addition.
- Be realistic in your planning. Stick with what you can afford to pay.
- If you are skilled enough, work on whatever you can complete yourself, like finishing touches.
Are home improvements and home remodeling tax deductible?
If you recently made improvements to your home, here’s what you need to know about deductions or claiming credits on your taxes. Generally, home improvements are not tax deductible for federal income taxes, but some improvements qualify for tax credits or deductions. The following are some examples:
- Installing energy-efficient equipment. You might qualify for tax credits if you installed wind turbines, solar panels, fuel cells, solar water heaters, and geothermal heat pumps.
- House renovations for medical purposes. Home upgrades and improvements to accommodate the medical needs of family members include installing railings, lifts or ramps, lowering cabinets, and widening doorways.
- Renovations for home office. You may need to convert a room into an office if you work from home. Then you may claim the home office deductionprovided that your house is your principal place of business.
Is home capital investment tax deductible?
Home capital investments are investments and upgrades a homeowner makes that add to the home value, extend its life, or adapt it for a new use. This can include anything from fixing up the Home to purchasing it. Home capital investments have several benefits, including tax breaks and the ability to use the Home as collateral for a loan.
Let’s look at examples that are considered home capital investments and improvements by the Internal Revenue Service:
- Additions – include building a second-story bedroom, deck, garage, porch, patio, and bathrooms.
- Exterior- this includes a new roof, new siding, storm windows and doors, and a satellite dish.
- Insulation– work done on pipes, ductwork, and insulation on walls and attic.
- Interior– this covers fireplaces, built-in appliances, kitchen improvements, flooring, and wall-to-wall carpeting.
- Lawns and Grounds– this includes landscaping, driveway, walkway, fence, swimming pool, and retaining wall that adds curb appeal and value to your house.
- Plumbing– this includes the water heater, soft water, filtration, and septic systems.
- Systems– air conditioning, heating system, furnace, humidifier, filtration systems for air and water, duct work, lawn sprinklers, security system, and central vacuum
The qualified capital improvements are tax deductible, but you can only claim the deduction if you sell your home. Add the cost of improvements and additions to the cost basis of your home.
You calculate the capital gain by subtracting the purchase price of your house from the sale price. If you make a profit, you earn a capital gain, and you will have to pay taxes on this capital gain. One good news is the IRS allows you to exclude gain when you sell your main house.
However, to qualify for the maximum exclusion of $250,000 if you are single or $500,00 if you are married and filing jointly. You must have lived in your house for two of the past five years and meet the Eligibility test. Some of your gains may be taxable if it’s more than the amount mentioned.
Capital improvements versus repairs
Not every remodeling or repair work to a property is classified as a capital improvement. Based on the IRS guidelines, repairs happen when you improve a property to keep it in operating condition, restore a property to its previous condition, and protect the property by doing routine maintenance and incidental repairs to a property.
Fixing cracks or leaks in your house or painting inside or outside is considered a repair to keep your home in good condition. If the repairs are a part of a bigger project, it can be a capital improvement.
If you are ready, go all in with the additional investment in your house. Talking to a professional when deciding on a remodeling contractor is essential. We can guide you with every aspect of home improvement and addition. Give us a call today to get the process started with one of our home remodeling experts, (630) 579-6600.