There are strict guidelines put forth by the IRS that describes how a homeowner should claim a home improvement tax deduction. Prior to hiring a contractor or incurring any out-of-pocket costs, the smart homeowner will obtain advice from a tax consultant or local Internal Revenue Service branch office.
A home improvement tax deduction may fall under any of several different topics, so it is important to explore the situations that are right for you. For example, if a mortgage has been refinanced to pay for a project, the owner of the home may qualify for a legitimate deduction. Likewise, deductions may be claimed if the home is being redesigned to make it handicapped accessible.
A home improvement tax deduction for medical or handicapped purposes may create a substantial tax savings, but only a qualified professional can best counsel you regarding these situations. In addition, it may also be possible to claim a deduction if you are building or improving a home office inside, or attached to the main residence.
Victims of Hurricane Katrina may qualify for a special home improvement tax deduction but should consult the IRS regarding the Katrina Emergency Tax Relief Act. In brief, it increases the permitted qualified home improvement loans. Again, a tax specialist can help determine if these victims can claim a special home improvement tax deduction based on their individual situations.
Publications
There are a wide range of publications from the IRS that should be consulted, in whole or in part, before planning to claim a home improvement tax deduction. These include: Publication 936, Home Mortgage Interest Deductions; Publication 502, Medical and Dental Expenses, which will discuss accessibility-related situations of a home improvement tax deduction; Publication 530, Tax Information for First-Time Homeowners; and Publication 554, Older Americans' Tax Guide. All of these may address a home improvement tax deduction based on individual circumstances and your family financial consultant or accountant can help determine the rest.
It is possible that a home improvement tax deduction may fall within several areas on the same form, whether some of it is written off under a refinanced mortgage, handicapped accessibility, or flood damage. It is better not to figure these out yourself, unless you have advanced knowledge of the tax laws and/or are ready to be held personally accountable when a home improvement tax deduction is found to be inconsistent with current laws.
You may call the IRS with additional questions regarding a home improvement tax deduction at 1-800-829-1040 for live assistance, toll-free at 1-800-829-4933 for business assistance, and 1-800-829-4059 for TTD assistance.
Do not wait until the construction is over to determine whether you have a qualified home improvement tax deduction. Good record-keeping throughout the project will make it easier to decide whether your home improvement tax deduction is legitimate, or if additional information and/or authorization is required.
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