Tax season is here and we know that preparing your taxes at times can be confusing, especially if you’ve had a major project that year, like a kitchen remodel. There are rules around whether or not you can deduct the cost of home improvements. We’ve pulled together a few pointers to help you start to approach your taxes and identify if you can in fact claim a kitchen remodel on your taxes.
Questions to Answer if Your Remodeling Project can be Claimed on Your Taxes
- Is this a remodel or repair?
Repairs are not tax deductible. So if you have to fix a major part of your kitchen, like the plumbing for a leaky sink, that cannot be deducted. On the other hand, a remodeling project may be tax deductible.
- Is your home a personal residence only? Or do you have a home office?
If your home is only used as a personal residence, then you cannot deduct the cost of any home improvements.
However, if you or someone in your family uses your home as an office for a legitimate business, then you could qualify for a home office deduction. Home improvements that only benefit the home office, like installing shelves or lighting in the office, can be deducted 100%. Any improvements that are done to your entire home can be deducted based on what percentage of your home is taken up by your home office. So, if 25% of your home is a home office then 25% of the cost from upgrading your heating and cooling can be deducted from your taxes.
Major renovations may be added to the cost basis of your home when you sell, effectively reducing your income from the selling price, and ultimately reducing your taxes.
- Do you rent out your home?
If you rent out your home, either part or full, you can deduct the costs of home improvements from the rental income. As with the home office rule, you may only deduct improvements that benefit the portion of the house that is being rented. And if the improvements benefit the whole house, deductions can only be made based on the percentage of the home that is being rented.
- Did you sell your home or are you selling your home soon?
When you are selling your home, tax deductions may be taken from home improvements. In general, to qualify for a tax deduction your home improvement has to add to the value of your home, extend your home’s lifetime, or give your home new uses.
Be sure if consider if your renovations permanently alter the home or if they are just minor improvements.
When in doubt, keep records!
Whenever you are doing a major renovation to a kitchen or any other part of your home, it’s important to keep records. When it comes time to review your tax deductions you will want to have records and receipts of every project you’ve worked on in that past year.
These tips should help you get started with approaching your taxes with potential deductions from major remodeling projects. As always, contact a tax expert or CPA in order to gain the best information for your individual taxes.