As a homeowner, you may wonder whether making home improvements, such as replacing a roof, is tax-deductible? The answer depends on the kinds of improvements you make and how well you’ve kept track of your expenses. Here’s an idea of how improvements made to your home affects your taxes.
Is Replacing a Roof Tax-Deductible?
To quickly answer the question, no, you can’t deduct the cost the same year you spend the money; however, if you keep track of your expenses, they can help reduce your taxes in the year you sell your home. Let’s break down improvements vs. repairs.
Add the cost of capital improvements (something that adds value to your home, prolongs it, or adapts it to new uses) to your tax basis (the amount you’ll subtract from the sales price to determine the amount of your profit) in the home. Some of these improvements add value to your home:
- A new central air-conditioning system
- A swimming pool
- A new roof
- An addition to the house
Capital improvements aren’t limited to just big-ticket items. Other improvements that qualify include:
- A home security system
- An extra water heater
- An intercom system
- Storm windows
Also, if you get improvements that include or implement energy-saving home improvements, you can qualify for tax credits at the same time you make them.
On the other hand, the cost of repairing your home is not added to your basis. These home repairs may include fixing a gutter, replacing a windowpane, or painting a room.
Regardless if you make capital improvements or home repairs, you don’t need to save every receipt as you did in the past. Now, home-sale profits are tax-free for most homeowners, so there’s no guarantee that careful tracking your basis will matter.
For any capital improvements you want to include in tax relief, it’s best to create a particular folder or use software that allows you to record all of your expenses you made in improving your home. If you’ve lived in the house for many years and the housing prices in your area have gradually gone up over that time, a portion of your sale could be taxable. If this is the case, you can reduce the taxable gain by including these improvements in the cost basis of the house.
If you operate a business within your home or rent out a portion, you might be able to write off or “depreciate” part of your home’s adjusted basis. If you go this route, remember, when you sell your home, you can’t exclude the amount of depreciation you took under the $250,000/$500,000 gain exclusion break.
Need Roof Replacement? Call Us
Do you need a roof replacement? If so, we invite you to reach out and contact The Roof Doctor. We can identify your problem and offer options that fit your needs, including your budget constraints. Call us today to learn more.