Home repairs might produce a tax benefit.
Amounts paid to a handyman for repairs on your personal residence are not deductible on your federal income tax return unless you are renting a portion of your home to a tenant. However, money spent for substantial improvements of your personal residence may provide a tax benefit when you sell your home.
Nondeductible Expenses
Personal expenses are generally not deductible for tax purposes. Section 262 of the Internal Revenue Code does not allow federal tax deductions for personal, living or family expenses. As a general rule, most amounts paid to a handyman for repairs are not be deductible. However, expenses related to owning investment property or a rental home may be deductible for federal tax purposes. An example of a property that qualifies as an investment is one that you purchase so you can fix it up and resell it at a higher price. Your property is considered a rental property if you rent it out more than 15 days during a calendar year. A property qualifies as investment property if you purchase it with the intent to treat it as an investment and not as a personal residence. It may be difficult to convince the Internal Revenue Service that a property that was once used as a personal residence is being converted to an investment property.
Rental Repairs
If your house was rented for more than 15 days during the year, or if you rent out a part of your home such as a bedroom, you can deduct a portion of the amount paid to a handyman for repairs. The amount that can be deducted is based upon a ratio of the number of days in the year which the property was rented compared to the number of the days the home was used for both rental and personal purposes. For example, you rent your vacation home out for 80 days during the year and use it for personal vacation 20 days as year. You spent $2,000 on fixing the roof this past year. The deductible portion of the repairs is $2,000, multiplied by the number of days rented (80), divided by the total days used (20+80). This amounts to ($2,000 x 80)/100= $1,600. The deductible portion of repairs for rental property is deducted on Schedule E of income tax form 1040.
Non-rental Repairs
Even if your house does not qualify as a rental home, you may receive a tax benefit for certain major repairs or improvements. If you sell your home, the Internal Revenue Service requires that you report any gain you realized on the sale of your home. This gain is calculated by subtracting what you invested in your home from the total amount for which you sold your home. For example, assume you purchase a home for $80,000. You spend $3,000 on a new roof. You then sell your home for $100,000. Your taxable gain for federal tax purposes is $100,000 minus $80,000 minus $3000 = $17,000. You must remember that not all repairs are deductible. Only those for major repairs or improvements will be deductible. Therefore, you should save your receipts and consult a CPA or a tax attorney for help in determining which expenses provide a tax benefit.
Tax Credits
In tax years 2007, 2009 and 2010, the federal government allowed homeowners to receive a credit for expenses associated with adding insulation, replacing windows or upgrading appliances to new, energy-efficient models. A credit reduces your tax liability on a dollar for dollar basis and is more advantageous than a deduction. You must be careful and research whether any federal tax credits are still available and whether they apply to your improvement or repair.
Tags: your home, personal residence, days during, handyman repairs, Internal Revenue
