The Weekend Warrior and Looking at Tax Deductible Home Improvements
Last year, everyone was stuck at home transformed many people’s ideas of “personal space.” As such, interior design, decluttering, organizing, and rearranging became an outlet for many. If you found yourself having to work, study, exercise, and “hang out” at home throughout 2020, then you know what we’re talking about.
Suddenly, all over the country, hardware stores and do-it-yourself channels were booming with people looking for ways to spend their time and some of the money they were saving on going out to movie theaters, dinner, and other entertainment.
There was a lot of buzz surrounding the wave of weekend warriors marching into the local Lowe’s and Home Depot. The house remodeling website, Houzz, reported a 58% annual increase in project leads for home professionals. Other sources reported the uptick in DIY projects and renovations through sales of hardware and home improvement stores.
As quarantine dwellers everywhere got to work on their backyards, garages, and more, many wondered whether some of the work they were doing might benefit them come tax time. Let us explore this question further!
Most people engage in home improvement projects to beautify their space and add value to their property. Finishing your basement or fixing up the garage will increase the value. This is referred to as capital improvement, and it can often help you lower your tax bill when you sell your house. It’s not always so clear cut.
Who is the Weekend Warrior?
Where does the term weekend warrior come from anyway? Well, there seems to be some debate on this matter. It’s well understood that the term might have derived from the Army slogan used to recruit soldiers for the Reserves. Some say the term derives from U.S Navy personnel who would speak derisively of the reservists that would come in on the weekends or a term of endearment for these very same reservists from the civilian population. Somehow the term made it into the popular vernacular and has come to refer to many people who spend their weekends doing projects, fixing up their home, painting, gardening, and so on. People use the phrase in different ways, but folks who get busy on the weekends working on their home improvement projects usually embrace it.
Common Home Improvements During the Pandemic
After almost nine months of the pandemic being part of our lives, homeowners across the country engaged in a wide range of home improvement projects. The most common have been:
- The classic kitchen remodel
- The bathroom remodel and renovation
- Turning the garage into the home office
- Converting the garage into a fitness center/gym
- Garden and landscaping
- Outdoor project and/or addition such as decks, pergolas, and more
- Environmentally friendly upgrades
What Home Improvement Projects are Tax Deductible?
Most home improvement projects on a personal residence are not tax-deductible for federal income taxes. Some tax credits exist for installing certain energy-efficient equipment on the property or making renovations for medical purposes, such as ramps and wheelchair accessible bathrooms. Renovations for medical purposes can often be deductible as a medical expense.
As mentioned above, some capital improvements can be beneficial when it comes to taxes. Some people might get confused between a repair and an improvement. Fixing something like a few roof shingles after a windstorm is a repair. Replacing the whole roof would be considered a capital improvement. The IRS sees capital improvements as those that raise the value of your home. A capital improvement might include renovations like a new bathroom or deck to a new water heater. The improvements must be evident, however, at the time of selling.
Whether or not your capital improvements can help you at the time of sale depends on what they call the cost basis. This refers to how much you initially spent on the home. If you bought the home for $250,000 and then spend $15,000 on kitchen renovations, then this will add to your cost basis and becomes your adjusted cost basis of $275,000. If you sell the home for a capital gain that is more than the baseline amount, keeping the receipts and proof of some of these improvements can save you some big bucks.
At the same time, renovating the home increases the basis or total financial investment in the property. This might reduce your taxable capital gain when it comes time to sell your home. There is a federal exemption amount on the first $250,000, so it might not apply if your home is sold for less than the amount.
Home improvements are a big part of the fun and responsibility of being a homeowner. If you’re a homeowner looking to sell your home, then you know this all too well.
Looking to Sell Your Home? Trust the Best Home Selling Team in El Paso
Whether you were able to finish the bathroom remodel or redo the kitchen, we can help you sell your home. Since the Spring of 2020, the El Paso housing market has seen a high demand for buyers. If you’re thinking of selling, don’t wait. Now is a great time to take advantage of hungry buyers. Connect with the Brian Burds Home Selling Team and find out how we can help you sell your home.