Are you wondering if you can write off your home improvements? Home improvements in Albuquerque can have tax implications, but only in certain situations. For taxes, a home improvement is defined as any work that significantly increases your home's value, extends its useful life, or enables new uses for the property. The specifics of when home improvements impact taxes are examined below.

Home Improvements vs. Repairs

The money you spend on your home in terms of taxes can be divided into two categories: improvements and repairs.

The cost of capital improvements made to your home can be added to the tax basis, which is the amount subtracted from the sales price to determine your profit. However, you can only benefit from this tax basis increase when you sell the home.

A capital improvement in this context refers to anything that adds value to a home, adapts it to new uses, or prolongs its lifespan, as mentioned previously. Examples of capital improvements include installing a new roof or central air conditioning.

While capital improvements don't need to be major purchases, installing small upgrades like storm windows or a home security system can also qualify. However, repairs cannot be added to your basis. Repairs may include painting your home or fixing gutters. If you make any improvements to your home, be sure to keep thorough records of everything in case you sell the property in the future.

Tax Deductions for a Home Office

One way to save on taxes and improve your home is to build a home office. You can claim a deduction for improvements when converting an area into a dedicated workspace, which many people now do as more work from home.

The cost of any home repairs that improve the part of your home used as an office can also be deducted, based on the percentage of your home that is used for business.

Likewise, if you rent out part of your home, you may be able to deduct the cost of improvements made to that rented area. For example, if you were to add a bathroom to the portion of the home you rent out, you may be able to deduct the full cost of that renovation.

Medical Modifications

If a health care provider suggests modifications to your home to help you or to allow you to provide care for your family member, such as an aging parent, the expenses of these updates may be deductible. Examples include adding a wheelchair ramp or modifying your doorways. If the improvement adds value to your home, on the other hand, it’s not deductible.

Upgraded Energy Systems

If your health care provider suggests home modifications to help you or allow you to care for a family member such as an aging parent, you may be able to deduct the costs of these updates as medical expenses. Deductible improvements include adding a wheelchair ramp or widening doorways. However, you cannot claim the costs as a medical deduction if the modification increases your home's value.

The residential energy property credit covers several home improvements that increase energy efficiency, including installing energy-efficient windows, doors, skylights, metal or asphalt roofs, insulation, and heating and air conditioning system upgrades.

Upgrading your home opens opportunities to lower your tax bill, but restrictions apply. If any part seems unclear, consult a tax advisor since rules vary annually.

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