If you choose to claim itemized deductions (as opposed to a standard deduction) on your tax forms, you may list any number of tax-friendly items you spend your money on that can earn you a refund on your taxes. One such item is home renovation.
Differentiate Between Home Renovation and Home Repair
The IRS allows you to claim deductions related to "home renovation," but not "home repair." You need to know which expenses are deductible and which expenses are not allowable deductions. A home repair is any work that includes minor changes to your house. Expenses you incur to repair broken things are considered home repair expenses. These types of expenses are not deductible. However, expenses you incur to improve the conditions of your house, such as completely changing one item for a newer and better one, are home improvement expenses. These expenses, under certain conditions, can be considered allowable deductions.
Classify the Nature of Your Home Renovation Expense
Consider why you needed the change or renovation. Even though home renovation expenses can be deductible, not every renovation you make to your house is deductible. Home renovations that you perform for personal reasons, such as to beautify or make your house bigger, are not deductible expenses.
Home Renovation Deductible Expenses
The two main types of home renovation expenses you can claim on your tax return are home renovations for medical reasons and home renovations to make your house more energy-efficient. Expenses related to medical reasons are called "medical expenses." If you need to make improvements on your house because of medical conditions related to you, your spouse, a child or another dependent, the IRS classifies these improvements as medical expenses. They must be recommended by a doctor, simplify the afflicted person's life, provide more comfort and space for movement, help to improve the medical condition or serve as part of her medical treatment. These expenses include building wheelchair ramps, lowering lights, changing air systems (for people with breathing problems) and making adjustments of any physical condition in the house, such as lowering sinks and removing furniture.
If you make improvements that help to make your house more efficient, you can also receive tax benefits for them. These expenses include installation of solar panels, water heathers and windmills.
Tax Credit and Tax Deductions
A tax credit is different from a tax deduction. A tax credit is a percentage from your taxes that the IRS grants to you, and it applies to all of your taxes. It is a percentage that you do not need to pay in taxes. A tax deduction only applies to your taxable income and decreases the total amount your tax is based on. Medical expenses are tax deductions. Home renovation relating to energy efficiency is generally a tax credit of 30 percent of the cost you paid to improve your home. When you incur expenses to improve your home, define whether they are a deduction or a tax credit so you can properly claim the tax benefit for it.
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