When you want to do work on your home, you need to decide if it is a repair or an improvement. This is a very important difference, since home improvements are tax-deductible but home repairs are not.
So, what does it mean to improve your home? Home improvement is, at its most basic, any task that makes your home better and, therefore, increases its value. Some of these projects would be putting up a new fence, installing a new driveway, remodelling your entire kitchen, extending your property to add a room, building a swimming pool or garage, building a deck or porch, adding insulation, installing new heating or air conditioning systems, replacing the roof, or re-landscaping your yard. All of these things will cost you money up front, but they will increase the value of your home and your equity in it.
Home repair, on the other hand, is something you do to keep your house from falling apart or deteriorating, which would cause its value to drop. The task is needed to keep your home in the same condition it is in now, without making any big changes or additions. Home repairs include things like painting or decorating, fixing leaks or broken things, fixing cabinets, and replacing things that don't work anymore.
Most of the time, money spent on home repairs can't be used to get a tax break. There is a chance, though, that you could combine your repairs with a home improvement project and still save money. If you did a big remodelling project, you would do a lot to improve your property and raise its value. If you also did some repairs as part of the project, you might be able to deduct the whole thing from your taxes. In other words, the next time you want to add a room to your house, fix the roof while you're at it.
If you need to refinance to pay for home improvements, you might be told to wait until interest rates go down. If you get a refinance and use the money to fix up your home, you can deduct the loan points in the same financial year. If you don't use the money to make changes to your home, the points will be taken out of the loan over time. If you only use a portion of the loan for home improvements, your possible deduction is also proportional. The rest of the points will be taken off over the loan's term. Any points that haven't been taken off by the time the loan is paid off will be 100% tax deductible in that year.
Before you start working on your home, you should really know the differences that allow or don't allow tax deductions. Then you can decide if it would be financially smart to do more than just simple repairs to your property to increase its value and make sure your costs are tax-deductible.
