Now that you've bought your dream home, there may be certain things that you would like to change. Perhaps you want a different bathroom or an updated kitchen. Or you may simply want to make your home more energy efficient. Whatever you decide to do, a tax write-off would be a bonus after all you've spent on the remodeling. Depending on how you finance the remodeling and the improvements you made, tax relief may be available.
Expiring tax Credits
If you did your remodeling before January 1, 2012, two tax credits may be available to you — the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit. This is the last year these credits are available and can reduce your tax bill by a percentage of the cost of the improvements. Both of the credits are designed to spur investment in energy efficiency, so only certain "'green energy" improvements are eligible.
Nonbusiness Energy Property Credit
Your remodeling may also be eligible for the Nonbusiness Energy Property Credit if the improvements that help winterize your home or more efficiently heat the space. This credit is 10 percent of qualified improvements including insulation, some roofs, energy-efficient exterior windows and doors. If you install heating and air conditioning systems, hot water heaters or stoves that burn biomass fuels, you can also take 10 percent off, but you can also include the labor charged to install it. There is a lifetime cap for this credit of $500. Only $200 of the $500 can be used for windows.
Residential Energy Efficient Property Credit
The Residential Energy Efficient Property Credit is for taxpayers who purchase energy efficient equipment. Qualifying energy efficient equipment includes solar hot water heaters, geothermal heat pumps, fuel cell property and wind turbines. Check the manufacturer's website, or look for a tax credit certification statement packaged with the product. This credit gives you 30 percent of what you spent, including labor. There is no cap on the amount you can deduct, except for the fuel cell improvement.
If you decide to finance your home remodeling project, and use your house as collateral for the loan, you may have some deductions available. If you paid points at a rate common for your area, you can deduct the amount of the points that you paid for with your own funds the year you paid them. To be eligible for this deduction, you must report your income in the year you receive it and the points you paid can't include appraisal fees, inspection fees or other costs separately listed on the settlement statement. You can deduct the rest of the points over the life of the loan. The same is true for refinancing, but you can only deduct the portion related to the improvements you made.
Julie Segraves is a freelance writer and photographer. She has written for several community newspapers in Chicago and authors her own blog. Segraves graduated from Loyola University with a Bachelor's in sociology and a minor in criminal justice. She currently works in the IT field as a mainframe operations analyst and disaster recovery specialist.