We’re getting towards the end of the year, and with the new year comes tax season. Many people get overwhelmed at the idea of filing taxes; let’s take the time now to go over some of how owning and improving a home may affect – and, most of the time, benefit – your taxes. Tax benefits are essential to many Sarasota area residents and business owners – let’s explore this topic a bit further.
Important: Please note that Promise Electric is not providing tax or financial advice. If you have any questions regarding any of these strategies, call your tax professional or financial advisor.
Improvements Increase Your Basis
Most home improvement renovations are considered personal expenses and therefore aren’t deductible on your taxes–for instance, getting your back deck screened in or remodeling the bathroom. However, the money you spend on these projects gets added to your cost basis; this is the total amount of money you’ve invested in your home. When it comes time to sell your home, a portion of the money you make from selling it gets added to your income. Single filers can deduct $250,000 from their net profit, while joint filers can deduct $500,000. By this reasoning, it’s easy to see how tracking the amount you spend on home renovations can help decrease your taxable income for the year.
Home Office Deduction
You may be eligible for tax deductions when you own a business and work from home. Improvements in whichever room you use as your home office are then deductible from your income. You may need to rewire a bedroom better to suit the electrical needs of your computer system, or perhaps you need to add bookshelves to the dining room that you use as the hub of your business. These improvements that benefit your business can be taken out of your income. You can also depreciate the cost of replacements or improvements made around the home in percentages—if you need to replace your air conditioning unit, and your home office comprises 15% of your house’s square footage. You can deduct 15% of the total cost of replacing the appliance from your taxable income.
Deducting Rental Expenses
Renting out a portion of your house creates a situation similar to when you have a home office. If you make repairs or remodel the area you are renting out, those expenses are deducted from the total income you make from your tenant’s rent payments. When remodeling something that benefits the entire house (e.g., the kitchen, HVAC, driveway, etc.), you can decrease the cost by the percentage that benefits the rented portion of the home.
Energy Tax Credits
When you make environmentally-friendly, sustainable improvements, they likely qualify for the Residential Renewable Energy Tax Credit program. This program allows for a percentage of the installation cost of technologies like solar panels and geothermal pumps to be deducted from your income. The current program qualifies for a 26% deduction through 2022. In 2023, this will be stepped down to 22%. After that, the tax benefits program expires unless renewed by legislators for continuation.
For any residential or commercial electrical need, call Promise Electric. Our master electricians are experienced in large and small scale projects and can help you make the best decisions for your overall vision and budget. For renovations or new construction builds, you don’t just need a few wires – you need a small installation of the safest and most efficient electrical wiring system possible. That’s what you’ll get with Promise Electric. Call today to find out why we are one of the Sarasota area’s most trusted electrical services companies.
