“Should I Make Home Improvements During Tax Season?”
Tax season is upon us, and if you’re like most people, you’re probably thinking hard about your financial situation. For a lot of taxpayers, your home is your biggest investment—and it can even secure a number of deductions if you play your cards right.
As with most things in life, timing is everything. Coordinating a renovation to fall in line with tax season is key. You may not be able to claim (potentially) lucrative tax credits until next year, but you’ll have plenty of time to get it all right—gather tax documents and find the right tax preparation for you—before tax time rolls back around again.
Here’s the skinny on tax-minded home improvement planning:
1 – You Can Deduct the Cost of Certain Energy Improvements
Thinking about going solar? The Residential Energy Efficient Property Credit could pay out up to 30% of the costs to purchase and install qualified energy equipment, like solar panels and solar hot water heaters. When you claim this credit on your taxes, the IRS deducts that 30% from your final tax liability—in other words, the amount you owe to the federal government once you calculate your net gain and deductions. Is your tax liability for the year less than 30% of your system costs? You can roll the remaining credit over to use for next year.
Since you’re prepping your 2016 taxes now, you won’t be able to claim these deductions until next January on your 2017 tax return. That means almost a full year before those home improvement credits could come home to roost.
2 – Making Home Renovations During Tax Time Gives You Time to Plan Ahead
Instructors tell interior design students that “everything takes three times as long as you think it will.” You may have the quickest contractor on the block, but vendor delays, permitting snags, and even your own decision process can all slow home improvements down. It’s never a bad idea to allow for extra time to work out all the kinks. After all, home improvements aren’t exactly reversible, and if you’re planning on taking deductions for next year, you want to have all the time you need.
Take the time to gather at least three to five different quotes for your project, to check your contractor’s reputation and references, and to talk at length with the worker you hire about what you really want from your project and what you’re willing to spend.
As a bonus, this allows for time to plan your improvement around contractor off seasons, so you may save a little bit of money. For instance, you can schedule an AC replacement for the early fall, when everyone is dreaming up their Halloween costumes, thinking of fall, and not worrying about their HVAC equipment. You’ll have your pick of the litter in terms of contractors!
3 – Plan to Make Improvements After Your Home Is Assessed for Property Taxes
If you’re anything like most people, you don’t have the money to waste paying extra taxes. Scheduling your home renovations appropriately can save you money on your property taxes—for this year, at least. Contact your local assessor’s office to find out when valuations occur so you can plan your project for afterwards. A large renovation—such as refinishing a basement or upgrading a bathroom—can improve your home valuation. Anything that increases your home’s living space means it’s worth more. In some cases, even adding a covered deck or nice shed could trigger a reassessment.
Because local property assessors typically work on their own schedules, get in touch with their office directly to find out when your property assessment is scheduled. Then, schedule your new kitchen revamp for afterwards. After all, why pay extra when you don’t have to!
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For individual taxpayers, Schedule A is used in conjunction with Form 1040 to report itemized deductions. If you choose to claim itemized deductions instead of the standard deduction, you would use Schedule A to list your deductions. Your itemized total is then subtracted from your taxable income.
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