Tax Benefits of Remodeling Your Home

October 1, 2009

There are many benefits to remodeling your home; at the top of the list is pride of homeownership.  But for so many of us, we have to remodel our home in stages – we don’t have unlimited funds to changes everything at once.  If you do not have an urgent need to remodel a particular space over another (ie. leaking roof, structural damage, etc.), how do you decide what takes priority?  If you are looking for tax deductions, then you may want to consider these remodeling projects first.

Current Tax Breaks

Cash for Clunker Appliances

Starting this fall, as part of the economic stimulus plan under the American Recovery and Reinvestment Act, the “Cash for Clunkers” extends to Appliances.  Basically, purchase a new energy efficient appliance and get a tax credit of $200.  Just like the “Cash for Clunker Automobiles” there is a set dollar amount set aside for this program and once the money is gone, the program is over.

Appliance companies should have available to you the list of products they carry that qualify.  You may have to surrender your existing appliance in order to receive the benefit.

Energy Efficiency Tax Break

Install a solar panel to provide your home energy and not only will you see a substantial tax credit and your electric usage drop, but you may even be able to sell energy back to the electric company. 

For those of us who are less adventurous – upgrade your boiler, heater, furnace, air conditioner, windows, roof, or insulation and you will not only see savings on your gas and electric bills.  

The credit covers 30% of the energy saving improvements, capping at $1,500 for 2009 and 2010.  The credit will no longer be available after 2010.  When you complete your tax return be sure to include Form 5695.  The IRS website gives more information.

Potential Future Tax Breaks

The Home Improvements Revitalize the Economy (HIRE) Act of 2009

Provides a tax deduction of up to $2,000 per family, or a tax credit of $500, for the purchase of certain materials and home furnishings.  If you use green products that meet LEED (or other recognized standards) the tax deduction would actually double.  Purchases excluded from the HIRE Act are major appliances, housewares and electronics.

The lead sponsors of the HIRE Act are Rep. Henry Johnson and Rep. Nathan Deal from Georgia.  (Be sure to contact them and your local representatives if you feel this benefit would have a positive effect on the American economy.)

Canada has had a similar program in place since January and has seen a positive effect in stimulating the home improvement industry with one in three Canadians planning to take advantage of the program. (Home Channel News, 9/21/09, pg 35)  For more information visit the HIRE Act of 2009.

Like the auto industry, the home improvement industry is huge.  This is a service industry rooted in American workers and the US economy.  In the past couple years over 270,000 Americans have lost their jobs in the building products and home furnishings sector, and a loss of over 290,000 jobs are expected for 2009.  Keeping Americans working is not only a short term tax relief for homeowners, but it is a way to help us all weather the long term effects of this stormy economic climate.

Whatever you do, when you remodel your home, keep documents of everything.  Think of each contract not as a receipt of purchase but a proof of investment.  Give a copy of what you did for the year to your accountant.  When you sell your home, have these documents on hand, you may be able to deduct these expenses from any capital gains.

* Consult your accountant to see what tax benefits you qualify for before you start a remodeling project.

Written by Imperial Kitchens and Baths Designer, Stephanie Bullwinkel, CBD.

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2 Responses to “Tax Benefits of Remodeling Your Home”

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