Home improvement tax deductions for 2013, 2014 - TraverseCity Tax Preparation

If you are thinking of doing home improvements you may be interested to know that the money youspend in order to complete your project may be eligible for home improvement tax deductions.

Home improvement or home repair

It is very important to know exactly what you are doing in your home improvement process.However, home improvement and home repair are two different things. In terms of tax deduction,home improvement will meet the requirements for the deduction, but the latter doesn't.

An improvement will increase the value of your home, and a repair is simply the process of upkeepto maintain a home. Typically repairs are not tax deductible.

Tax deductions for home improvements

Find out if your home improvements are tax deductible by using tax software. You will be askedsimple questions about what you have done to your home, and based on your answers the softwarewill automatically know if your work qualifies for a tax deduction.

Home improvements will add enhancement to the appearance and quality of your home. Items thatfall into this category include things like remodeling the kitchen, adding a fence to your yard, addinga pool, extending a wing on your house, adding a new room or two, building a garage, deck, porch,or improving heating and cooling systems. All these improvements are treated as capitalexpenditures.

Second mortgage or home equity loan

The best time to make some improvements to your home is when interest rates are low on loans.Lower rates mean that in the end, the individual who is using a loan to fund their homeimprovements are able to expend a lesser amount of money.

You can deduct the interest you pay on a loan if you take out a mortgage to finance your homeimprovements. If you're filing status is Single, the tax deduction for the interest is capped at the first$500,000 of the loan. If your filing status is married filing jointly, the interest is capped at the first$1,000,000 of the loan.

If you take out a home equity loan the interest deduction limits are the same. The important aspectof interest deduction on a home equity loan is if it is exclusively used for home improvements or not.If the entire loan is exclusively used for home improvements the limits remain the same, but if theloan is not exclusively used for improvements the limits drop to $50,000 for Single filing status, or$100,000 for Married Filing Jointly.

The IRS tax deductions will apply to three basic types of home improvements:

for medical purposes such as, wheelchair accessibility

for energy generation and the installation of energy efficient products

with the aid of home equity loan or line of credit

TurboTax Deluxe can help you claim your home improvement tax deductions. You don't have toguess when it comes to which projects qualify and which ones don't. The most important part is tomake sure the products you choose qualify for the tax deductions before you install them.