If your home has suffered some kind of damage from weather events, an accident, or general wear and tear, as a tax-paying homeowner, you may well be wondering if home repairs are tax-deductible.
Like other tax-related questions, the answer is somewhat complex and includes both good news and bad news – here is what you need to know concerning home repairs and tax deductions.
You Can Deduct “Casualty Losses”
The large majority of home repairs are not tax-deductible. That said, there are some important exceptions and caveats to that statement. First, there is the casualty loss deduction for damage caused by natural disasters or sudden, unexpected weather events.
The IRS will only allow you to deduct that portion of the repair cost that is not covered under your homeowners insurance. If you don’t have home insurance, you can deduct it all. However, there are limitations too. You can’t deduct more than 10% of your adjusted gross income (minus an additional $100), and you can’t deduct more than the original cost of the damaged property plus any amount you put into improving it earlier.
In certain situations, you can get thousands of dollars in tax deductions from a single repair or multiple combined repairs under these rules. So be sure to look into this option and talk to an informed contractor or tax expert about getting your maximum home repair deduction.
You Can Deduct Home Improvements
If you add value to your home instead of just bring it back to its pre-damage state, that counts as a home improvement instead of a home repair. Thus, let’s say your windows or doors were damaged but you don’t qualify for a casualty losses deduction. If you install new windows or doors that upgrade your home’s energy efficiency – better ones than the originals, you could deduct all or a part of the cost as a home improvement.
The Home Office Deduction
Another way to deduct home repairs is if you have an office you use for business purposes in your home. If you take the home office deduction, then you can deduct expenses related to repairing that home office.
You can deduct all of the costs of repairs made directly to your home office and a percentage of HVAC and some other house-wide costs that also affect your home office space. The percentage of floor space your office takes up in your home is the percentage you can deduct in the latter cases.
The Rental Property Deduction
If you rent out a room or a portion of your property, then you can deduct repair costs related to the rental property. If the repair is simply to the rented-out portion of your property, then it is 100% tax-deductible.
If it is to a building-wide system (like roofing, heating, or AC) that impacts the rental property, then you deduct on a percentage of floor space basis just like for the home office deduction.
Long-term Ways Repairs Can Reduce Taxes
Finally, if you ever go to sell your home, you can subtract the total expense of all repairs and upgrades made to it from the capital gains to lower capital gains taxes.
For example, if you paid $100,000 for your home, put in $25,000 in repairs/upgrades, and sold your home later for $150,000 – your tax basis would be lowered from $50,000 to $25,000 because what you put into your home lowered your profit margin.
There are several ways that a home repair can reduce how much you pay in taxes. To learn more, contact Double J Siding & Windows in Amarillo, Texas, to talk to experienced contractors who are also familiar with these kinds of tax issues.