Whether you’re just looking to make a few small improvements to your home or you’re planning on completely overhauling it, there are several ways to do it. These include cashing out on your home equity loan or refinancing your mortgage. There are also tax deductions for some improvements, such as structural repairs.
Tax deductions for structural improvements
Adding or upgrading your home can provide a number of benefits, from tax savings to increased resale value. However, there are some pitfalls to avoid when you’re in the remodeling business.
To qualify for tax deductions, an improvement must meet a few criteria. For starters, it must be a capital improvement. In other words, it must increase the value of your home or extend its life.
The IRS defines a capital improvement as a new feature that adds value to your home. Examples include adding an outdoor kitchen, pool, or new central air conditioning system. These changes also extend your home’s useful life.
In most cases, you can deduct your home improvement expenses. However, you must use the money for a business purpose. For instance, if you’re a landlord, you may want to deduct your costs to install a pool or extra water tank for your tenants.
Tax deductions for energy-efficient upgrades
Whether you’re making a major renovation, or you’re just looking to save a few bucks, you can save money on your energy bills by taking advantage of tax deductions for energy-efficient upgrades for your home. These upgrades include energy-efficient windows, doors, central air conditioning, insulation, and other features.
Aside from the fact that these upgrades will save you money, they may also increase the value of your home. In addition, some improvements may be tax-deductible. However, there are many different rules, and they’re not always easy to understand.
If you’re looking to save money on your energy bill, you might want to consider installing energy-efficient appliances, such as energy-efficient water heaters. Using these appliances can help save you money on your electricity bills, while also helping the environment.
Cash-out refinance or home equity loan
Using a cash-out refinance is an option if you have equity in your home and would like to access it for a major home improvement project. However, it’s important to make sure that you don’t overdo it. If you use the cash for any other purpose, you may put your home at risk.
Home equity loans can be a good option for people with good credit. However, they aren’t available for those with poor credit or who owe more than the value of their home. If you’re unsure about whether or not a cash-out refinance is a good choice for you, seek the advice of a nonprofit credit counselor.
Home equity loans typically come with lower closing costs than cash-out refinances. However, some lenders will still require an appraisal.