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Improving or moving into a home are both big expenses, and people often ask us if there are tax breaks available to those who incur such costs. As with most tax issues, the answer is tricky. So here’s what you need to know if you’re thinking about renovating your house or moving into a new one.
Repairs vs. Improvements
If you’re renovating your house – say, building an addition near the living room, installing new insulation or replacing the furnace – you can bet that you won’t get any money back during the tax year that you made those improvements. But if you keep a record of the expenses that went into improving your home, they could potentially help lower your taxes if you ever sell your house. Capital improvements add value to your home, help it last longer and make it more useful. In that regard, capital improvements could be anything from adding a new roof or a swimming pool to installing a home security system or upgrading your kitchen. As those upgrades add up, your capital gains has the potential to decrease.
Repairs, however, cannot be included in your cost basis, unless they are an integral part of a larger renovation project. Painting your kitchen or replacing a few windows will not be eligible.
For more information, see IRS Publication 523.
Energy Efficiency Tax Breaks
The IRS’s Residential Energy Efficient Property Credit is available for property placed in service through Dec. 31, 2016. Homeowners that install the following alternative energy sources can benefit from the tax credit:
• qualified solar electric systems;
• qualified solar water heaters;
• qualified fuel cell property;
• qualified small wind energy property; and
• qualified geothermal heat pumps.
If you file IRS Form 5695, you’ll be able to get back 30 percent of the cost to purchase and install the new equipment.
• Making improvements that are medically necessary for you, your spouse or a dependent are also deductible. So long as these improvements do increase the value of your home, they can be claimed as medical expenses. These expenses must also be practical and reasonable; expenses incurred for aesthetic or architectural reasons won’t be deductible. Viable medical expenses include:
• Adding entrance and exit ramps
• Installing grab bars and railings
• Widening doorways
• Lowering kitchen cabinets
• Modifying bathrooms
See IRS Form 502 for more information.
Moving to a new home or city can cost an arm and a leg. But lots of people don’t know that if you’re moving to start work at a new job, your moving expenses could be tax deductible. As with home improvements, moving expenses can be deductible in some cases – but you need to meet some criteria.
Distance. In order to qualify for the deduction, your new job must be at least 50 miles farther away from your old home than your old job. For example, if your previous job was 25 miles away from your old home, you’ll need to have a job that’s at least 75 miles away from your old home to get the tax deduction.
Time. You’ll need to work full-time for at least 39 weeks during the first 12 months after you move, but it doesn’t need to be consecutive or at the same job. Furthermore, self-employed folks will need to work at least 78 weeks during the first 24 months after they move, including at least 39 weeks in those first 12 months.
If you meet those criteria, you will generally be able to deduct your expenses for the following:
• A professional moving company
• Moving trucks or pods you pack yourself
• Gas and oil or the standard moving mileage rate (including tolls and parking fees)
• Packing supplies
• Move insurance
• Travel expenses for one trip each for you and members of your household, including one day’s lodging
• If you can’t move in immediately, storage for up to 30 days after your belongings are moved, before they are delivered to your new home
• Utility connection/disconnection fees
Some other possible expenses will not be deductible, however, including return trips to your previous home, any charges incurred for breaking a lease, security deposits and more. Additionally, If your employer reimburses you for any deductible expenses, you must reduce your moving deduction by that amount.
See IRS Form 3903 for full details.
And, as always, if you have any questions about these rules, get in touch with us!