Nearly any home remodeling project, whether it’s the kitchen or the bathroom or anything in between, is an expensive endeavor. Virtually every remodeling project cost is going to the in four to five digit range, and so any project should be looked at as a major investment on behalf of the homeowner. Rather than paying such a substantial fee out of pocket, many homeowners elect to take out a loan from the bank to cover the costs. Home improvement loans are a common source of financing that banks will provide to homeowners. These are great options for funding a home remodeling project because, depending on your circumstances, you can actually be eligible for tax deductions on the interest you pay on home improvement loans. What follows in this article is a guide on how to make your home improvement loan eligible for tax deductions. Please note that none of this should be interpreted as professional tax advice or legal advice, and that you should definitely consult with a CPA before following any of the tips discussed below.
With the new tax laws passed by the Trump administration in 2017, there are a few changes that have occurred regarding how you can use the money that you deduct from your taxes for interest payments on home improvement loans. Additionally, there are certain requirements that must be met in order for your home to be eligible for such deductions. The first step is to find out whether or not your home meets the eligibility requirements for tax deductions on interest payments for home improvement loans.
Eligibility Requirements
There are two key requirements you must address before you can be eligible for tax deductions on the interest payments for a home improvement loan.The first requirement is to ensure that whatever loan you end up taking out is secured by your primary residence. This means you have to actually live in the home you plan on remodeling. The second requirement is that the money from the loan must be used to “substantially improve” the property that the loan is intended for. While there is no reason you wouldn’t be able to obtain a home improvement loan if you don’t meet the conditions listed above, you won’t be able to secure tax deductions on the interest payments unless you live in the property the loan is being secured for, and/or if the money isn’t used to substantially improve the property.
Ultimately it is the IRS who will determine whether or not your home remodeling project meets their definition of a “substantial” improvement. Before you can claim a tax deduction, you must first prove to them that the home in question is your primary residence. Once they have received evidence that this is indeed the case, the next thing they will need to do before approving your tax deduction is evaluate whether or not the improvements to your home meet their definition of “substantial”. Basic repairs and routine maintenance are not what the IRS considers to be “substantial” improvements. According to the IRS, in order for the improvements to your home to be substantial, they must increase the monetary worth of the home, increase the utility of the house over the long term, and/or create a new purpose or utility for the house. If your home remodeling project is relatively large, such as adding a new room or building a swimming pool, you’re likely to have your tax deduction approved.
Conclusion
Remember that it’s extremely important that you maintain excellent records of everything regarding your home remodeling project. The most important things to have records of to show the IRS are your mortgage interest statement (also known as a Form 1098), your escrow closing statements, any and all receipts regarding the work done on the home, and the loan contract you secured from your lender.
With the new 2017 tax laws passed by the Trump administration, there has never been a better time to tackle that big remodeling project that your home has been needing. With substantial improvements on your home being eligible for tax deductions on the interest payments for home improvement loans, now is the time to substantially improve your home, and by default, your life at home. The list of federally accepted “substantial” improvements is quite large, and you can reduce your taxes this year by finally getting that room addition you’ve always wanted, by repaving your driveway, or by adding that patio deck to your backyard that you’ve always dreamed about. Here at Divine Home Remodeling, we would be more than happy to make any of your large-scale home remodeling projects a reality. Remember, we offer free estimates on ALL of our services. No matter how big the job is, we will come out and assess the situation and break down the estimated costs for you completely free of charge. Don’t wait until the next election to take advantage of this great tax opportunity! Get in touch with us today! We can’t wait to hear from you.