Home maintenance and home improvement may sound like the same thing, but when it comes to tax write-offs, there are major differences. Understanding the differences and defining what each one means can prevent confusion, help you plan and budget and save time when you prepare your taxes for filing. HomeManager can help you track and organize your home projects making it easy to account for any that, in addition to keeping up your home’s value, might save you money at tax time. Here’s how home maintenance and home improvement differ and how to determine what you can and can’t deduct from your tax payments:
Repairs, fixes and upkeep all fall into the same category, home maintenance. Maintenance, whether one-time or routine, prevents damage to your home from regular wear and tear. It is taking action to keep up your own property for your own use.
Home maintenance may be defined as a project or task that keeps your home in good condition and maintains its value.
Neglecting maintenance decreases the value of your home over time and causes homeowners to shell out major money for major repairs and replacements.
Here are some examples of maintenance:
- Repairing a glass pane saves you having to replace a whole window.
- Repairing a crack, tear or hole in an item saves you from replacing a bigger area or the whole thing.
- Replacing a filter and cleaning, like for your furnace or your gutters and chimney, keep things running smoothly and properly.
Maintenance is not tax deductible… unless you can verify one of a few special circumstances apply:
- You have a rental property, or you convert your home to a rental property.
- Portions of your home as a home office or you rent out a portion of your home.
- You incorporate some maintenance projects into a bigger home improvement project that increases the value of your home, so that when you sell it, you may be able to deduct the whole project from your capital gains.
What kind of maintenance needs to be done on your home? Check out this article!
Any addition that adds square feet or increases value falls into the home improvement category.
Home improvement may be defined as a project that makes the home and property increase in value.
Increasing the value of your home with home improvement is good. However, It can result in increased taxes when you sell your home.
Ready to make a major improvement? It may be a good idea to ask your real estate professional for an opinion. Some improvements create value greater than their cost, and others have limited recapture value when you go to sale.
A point about APPRECIATION—two types to think about when it comes to home improvement:
- One is appreciation of value which means your improvement will make your home worth more to assessors, realtors and buyers.
- The other is appreciation you have for your home and your enjoyment of the improvement. You and your family may greatly appreciate a climbing wall for the kids, a pool or tennis court, but this type of improvement may not pay for itself by increasing your home’s eventual sale price as much as the cost of the project.
When you have both types of appreciation, you have made a solid investment in your home.
Just remember even though you can write off home improvement you cannot write it off when you do the improvement. You need to keep track of it, and when the time comes to sell your home you will be able to write off improvements by deducting their costs from your home’s proceeds to reduce the capital gains you have to pay.
Wrapping Up-Maintenance vs. Improvement Tax Deductions
When determining the difference in home maintenance and home improvement here is an easy way to think about it: maintenance keeps your home’s value up (to the current adjustment for its original value) rather than letting its value decline, and home improvement can increase your home’s value (beyond the current adjustment for its original value).
Other tax write-offs for home improvement may be available each year whether you sell your home or not. Many of these deductions are for energy efficiency improvements. Check with your accountant or tax expert for how you can take advantage of deductions from home maintenance and home im The rules change on this year to year.
HomeManager can help you track your expenses, materials and dates. Whether you are selling your home or deducting the cost of a project to offset your gains on the sale or claiming an expense made in a particular year to get a credit toward your annual return, HomeManager makes it easy to ensure you can verify your projects and expenses.