Tax Deductions Approved for Home Repairs
Do you want to have Uncle Sam help pay for some of the repairs to your home? The good news is, in a way, it's possible. There are a variety of tax deductions and credits available to homeowners for home repairs if they qualify. Using these deductions and credits can effectively decrease your taxable income and your tax liability. And the tax dollars you save can be used to help pay for the repairs.
Medical Deductions
If repairing a wheelchair ramp or installing an elevator are medically necessary, you can deduct the associated costs. According to the Internal Revenue Service, the expense must be for "medical care for you, your spouse, or your dependant." If your property value increases due to the permanent improvement, your deduction will have limits. The deduction will decrease by the amount of increased value in the property.
Interest
Interest for loans used to repair your home, unless the repair is for medical purposes, is not deductible. The interest you pay for a loan to improve your home can be deductible.
A repair is maintenance on the current dwelling without adding material value to the home. Improvements add value or increase the life of the property. Painting a home, even though it may increase the life of the home, is maintenance.
Interest that you pay for a first and second mortgage or a home improvement loan is deductible. As long as the loan proceeds are for the improvements or acquisition of your home, you can deduct this interest.
Home Energy Credits
Improving the energy efficiency of your home can provide credits to use against your tax liability. By purchasing items such as energy-efficient windows, solar water heaters or adding insulation, you can receive a tax credit. These credits are subject to change each year, so it is prudent to check the Internal Revenue Service website for the most up-to-date information on available credits.
A tax credit works differently than a tax deduction and ends with a better result. A deduction decreases the income you will pay taxes on, while a credit directly decreases the tax liability itself. A credit acts the same as if you paid cash to cover your tax liability or had money withheld from your paycheck.
Rental Deductions
If you own a residential rental, you can improve your property and deduct the expenses to do it. This type of home repair is for business purposes, and the deduction will reduce your net rental income. As long as the rental is not your personal residence, even simple repairs such as painting a wall become deductible.
If the rental is your personal residence, and a portion of the property is for rent, a proportional amount of the repair that you can attribute to the rental will be allowable. For instance, if you paint the entire house and rent 1,000 square feet of a 2,000 square foot house, then 50 percent of the repairs would be deductible from your rental income.
Where to Deduct the Expenses
Report all medical and interest expenses you will take for the year on form 1040 schedule A. This form allows you to itemize various deductions available in the current year, including these two.
The home energy credits find their way to your personal tax return via form 5695. You will determine the amount to claim for these credits, which will flow through to line 53 of form 1040.
All rental income and expense is reportable on a 1040 schedule E. Any repairs or improvements you make to the rental property will end up on this schedule. The net income or loss then flows to your 1040 on line 17.
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