Karen Behfar
Homeowners are responsible for keeping their properties up-to-date. From time to time, that responsibility calls for making improvements. The IRS encourages homeowners to do so by providing the opportunity for tax deductions on certain types of improvements.
While some home improvements qualify for tax deductions, others are eligible for tax credits.
Tax-Deductable Home Improvements
In the most general sense, a tax-deductible home improvement is a major renovation that adds value to your home.
These projects involve making a permanent enhancement, upgrade, or modernization that drives up the property’s cost basis and market value, which is why they’re called “capital improvements.” If you eventually sell your home, such renovations can raise profits from the sale.
Improvements to your home’s energy efficiency are usually eligible for tax credits, meaning your tax bill will be lower rather than your taxable income.
Tax Credits
Typically, tax credits yield more savings than deductions. Homeowners therefore have more incentive to invest in energy-efficient equipment and to retrofit their homes. The credit a homeowner receives reflects a percentage of the cost of a “qualified property.”
Some of the energy-efficient home improvement projects that may qualify for tax credits include:
- Solar panel or water heater installation
- Energy-efficient windows, doors, and insulation
- Electric vehicle charging stations
- Energy-efficient HVAC systems
The differences between tax-deductible improvements and those eligible for tax credits come down to the scope of the work and the value the improvements add. Tax deductions, which reduce your overall taxable income and exposure, are generally reserved for home improvements that permanently increase your property value.
By contrast, expenses that qualify for tax credits are usually related to keeping your home up-to-date, especially in terms of energy efficiency. These can include solar panels, insulation, and HVAC installation or upgrades. Consult a professional to learn more about tax credit limits and allowances.
What Makes an Energy-Efficient House?
If you are thinking of making an old building more energy-efficient or just want to know more about what to look for in a new building or property, take note of the following points:
Energy-Efficient Certificate – Ideally, the EPC score should be band D or higher.
Renewable Energy Sources – This is the energy generated from natural sources, such as solar power, renewable electricity supply, wind energy, air source, heat pumps, biomass heating systems, solar heating, and hydroelectric systems.
Modern Double Glazing or Secondary Glazing – Single glazed windows and doors are not good insulators. This means really high energy bills. Having your windows and doors double-glazed can offer substantial energy savings. Secondary glazing, on the other hand, is the best option for upgrading inefficient old windows for those living in buildings or in areas where double glazing installation is not allowed.
High Performance Cladding – Giving your home additional cladding is similar to putting an extra skin on the outside of it. Since much of the heat inside escapes through the walls, quality cladding may just be what the home needs to stay warmer longer.
An Insulating Front Door – Homeowners usually neglect front doors. Front doors need to be given more attention because they form a barrier between the home and the outside weather and other elements. An insulated front door will work wonders in making your home more energy efficient.