If you’ve recently remodeled your home then there’s a chance you can save on your taxes. In some cases, it’s possible to deduct renovation costs. You may even be able to receive a tax credit for some renovations. If you haven’t renovated your home but you’ve been considering it, take a look at the below ideas.
Make Your Home More Energy-Friendly
- Solar – Adding solar panels to your home isn’t just good for the environment. Thanks to Solar Investment Tax Credits (ITC), you may be able to lower your tax liability by a significant amount. According to the Solar Energy Industries Association (SEIA), “the Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property”(Issues & Policies). After you install solar panels on your home, you can apply the ITC credit to your income taxes. This benefit may be used for up to 20 years. At the moment the tax credit is 30%; however, in 2020 it will drop to 26%. By 2023 the credit will only be worth 10%, and it will permanently remain at that amount. Therefore, right now is the best time to install solar panels on your residence. Visit the SEIA’s website to learn more about solar tax credits.
- Simple Additions – Installing a new door or new windows that are energy-efficient are two simple ways to save on your taxes. Make sure that the products you purchase come with the Energy Star label. Also, the improvements need to be made in a home you own—not a rental property.
- Larger Upgrades – Electric heat pumps, electric water heaters, and air conditioning systems are three upgrades that can save you a significant amount of taxes. Updating your roof and adding insulation are two other projects that can save you a lot of taxes. If you’d like to learn more, take a look at this TurboTax article that provides more details on energy tax credits. Also, if you’re interested in installing a large system like a wind turbine or geothermal heat pump, look into the Residential Energy Efficient Property Credit. Just like the ITC, this credit is worth 30%.
Other Renovation Ideas
If you recently purchased your home and want to make renovations, you can take out a larger mortgage to help pay for the renovations. The IRS will let you deduct mortgage interest. It’s also possible to wait to do the renovations. Home improvement loans are tax-deductible as well. However, it’s best to pay for renovations without using any loan if possible. While you can save some money on your taxes when you use the appropriate loan, you’re also responsible for the loan’s interest.