Can Home Improvement Costs Be Used as a Federal Tax Deduction?

Making energy-efficiency improvements, such as caulking around windows, may qualify for tax credits.
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Home improvement costs can be very expensive, and smart homeowners look for ways to save money. One place that homeowners may be able to recoup some money is through tax breaks and credits. Many home improvement costs can be recouped through deductions and credits if you utilize the tax laws carefully.

Reasons for Home Improvement

There are many reasons homeowners seek to improve their homes. Often, it's out of necessity. For instance, many older homes need to be re-roofed periodically. Remodeling Magazine's 2011-2012 "Cost vs. Value Report" indicates that the average cost to re-roof a home is $21,204. Other home improvement repairs are often done to increase energy efficiency. The average cost to replace vinyl windows is $11,319. Some improvements are simply made to increase the value of a home; a minor kitchen remodel may make the home more appealing for buyers and costs homeowners an average of $19,588. Some homeowners are eager to implement alternative energy methods into their homes, such as solar or wind energy systems.

Tax-Deductible Improvements

Several improvements are eligible for tax deductions or credits. Homeowners who implement alternative energy systems, including wind, solar, biomass or geothermal methods, can obtain credits for up to 30 percent of their costs. Homeowners can earn tax credits up to $1,500 for new windows or doors that meet U-factor and Solar Heating Gain Coefficiency guidelines. The addition of insulation or air seals (caulking, window film or weather stripping) also can yield a homeowner credits totaling $1,500 on their federal tax returns. Roofing improvements with energy star-rated materials can also help homeowners rack up savings with additional credits.

Home Improvement Loan Deductions

Depending on how the loan is figured and points on the loan paid, some home improvement loans can be tax-deductible to a certain extent. The loan must be secured by the main home, and homeowners must utilize cash methods of accounting (expenses and incomes on a yearly basis) in order to claim the deductions. Home improvement loans must be for approved tasks, which include energy-efficiency efforts.

State Deductions and Credits

Many of these repairs and improvements can be used on your state tax returns, too. Depending on your state, most energy-efficiency improvements or addition of alternative energy systems are eligible for credits or deductions. Check with your state revenue department for more details about possible deductions.

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