With quickly changing tax laws of 2020, it’s unclear to even experts what home remodeling is tax-deductible under new guidelines.
While there isn’t a clear solution for what improvement projects will help homeowners save on their taxes by the end of the year, here are a few tips that are updated as of the date listed on this post.
If we find additional updates we will add them here and update the time stamp as well. However, with how quickly things are changing in the current health climate, please verify anything here with your accountant or tax attorney.
Most Home Remodeling Projects Are Not Tax-Deductible
The first thing to know is that very, very few home remodeling is tax-deductible.
However, it doesn’t mean that updating and investing in your home is a bad idea.
The best investments for home remodeling in 2020 for when you resell your house are:
- Hardwood floor: 109% of the cost can be recouped with a home resale–making it a profitable home update. [CNN]
- Siding: 92.8% [HGTV]
- Heating and cooling systems: 89% of the cost can be recouped (not to mention the improvement of your quality of life before your home sale) [CNN]
- Kitchens and bathrooms range from 52% of a recoup in lower-performing markets [CNN] to 182% in high-performing markets [HGTV]
That said, if you want to save money on your home improvement projects before selling your home, there are two major groups of home remodeling projects that will help you save money on taxes.
The first thing to understand IRS currently allows tax deductions on medical expenses related to “the diagnosis, cure, mitigation, treatment, or prevention of disease” — but not until the expenses exceed 7.5% of your adjusted gross income.
This means to qualify as tax-deductible, these medical expenses must be paid out of pocket and not reimbursed by your health insurance plan.
For many people, this is simply (and thankfully) not the case.
That said, if you made substantial improvements to your home to aid a physically disabled person — yourself, a spouse, or a dependent — or installed special equipment, those costs could be considered medical expenses.For example, construction of ramps, widening doorways or hallways for wheelchair access, and installing modifications to bathrooms or stairways, including lifts and handrails, will qualify for a full medical deduction as long as their addition does not increase the value of the property. If it does, a partial deduction is allowed.
You can find a full list of home improvements that qualify for the medical deduction on the IRS website.
2. The Residential Renewable Energy Tax Credit
Homeowners can claim a federal tax credit for installing certain energy efficiency appliances. This is known as the Residential Renewable Energy Tax Credit; solar, wind, geothermal, and fuel cell technology are all eligible. [Source] However, these credits will only apply to home modifications made through the end of 2021.2 When filing your taxes for tax years 2019, 2020, and 2021, take note of the adjustments that happen year to year.
There are three applicable percentages you can claim. [Source]
- 30% for property placed in service after December 31, 2016, and before January 1, 2020.
- 26% for property placed in service after December 31, 2019, and before January 1, 2021.
- 22% for property placed in service after December 31, 2020, and before January 1, 2022.
So what other home remodeling is tax-deductible in 2020?
Want to know more? Talk to your tax expert–whether they’re your accountant or lawyer.
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