Renovations are projects that involve improving the property from its original state to increase the property’s value, to lengthen its expected usable “life”, or converting it to a new purpose altogether.
Renovation of a home is an expense that is generally not deductible; but there are a number of ways that you can use home renovations and improvements to minimize your taxes, including tax deductions and tax credits for renovations and improvements made to your home at the time of purchase or afterwards. Like most capital investments, Home Improvements will deteriorate over time; so the tax code allows deductions to “invisible losses” represented by deterioration and “wear and tear”.
Each property may have different depreciation’s, based on estimates of its useful life. The IRS publishes more details in Publication 946 – How To Depreciate Property. Find the applicable method for calculating annual depreciation, and then fill out IRS Form 4562. These expenditures will pay dividends or and potentially improve your investment income or resale value.
The IRS does not consider these costs to be deductible business expenses. These expenditures are considered by the IRS to be capital investments, meaning you must spread deductions over the projected life of the property — a process called amortization and depreciation.
Renovations used for essential medical needs; such as installing wheelchair ramps, adding handrails in baths, lowering shelves, widening doors and hallways. etc. can be deducted as medical expenses. Renovation that is primarily or purely aesthetic, architectural, or recreational uses are obviously not deductible.
Hiring an experienced professional Home Renovation company such as Houseworks Unlimited can provide professional Home Renovation services, as well as advice on available tax credits and deductions you can take advantage of.