How will my basement remodeling project affect my taxes?
Nearly every homeowner, at one time or another, has dreamed of embarking on an ambitious basement remodeling project. Who among us hasn’t dreamt of a well-stocked basement wet bar, or a media center, or a home office? And if you play your cards right, you may even be able to catch a break on your taxes.
By itself, a basement remodeling project counts as a "home improvement" — which generally means you’re improving the quality of your domicile in some way. What you generally can’t do is deduct the cost of a basement remodeling project from your taxable income, since it’s not something that’s legitimately needed in any way (no matter how much you may think that wet bar is a medical necessity). What’s more, a newly remodeled basement may actually increase your taxes if it adds significantly to the value of your home.
But it’s not all bad news. There are a few creative ways to try for a tax deduction — or even a tax credit — when starting a remodeling project. But keep this caveat in mind: The basement remodeling experts at Rightway are not tax professionals. So before you go marking up your tax return in ink, contact an accountant or tax preparer.
That said, here are a few ways your remodeling project can brighten up your April 15th:
- A fairly substantial tax deduction is available to anyone who works from home, so any basement remodeling project that results in a home office can lead to deductions. This is complicated — you’ll have to get out a tape measure and determine just how much of your home is used as a home office. And it has to just be a home office; it can’t serve any other purpose. What’s more, the building costs may not be deductible. Check with a tax pro to be sure.
- If you’re remodeling your basement to accommodate a family member who is disabled or has special medical needs, you’re eligible for a deduction. Handicapped accessibility and any home improvements that are needed for medical reasons can be considered medical expenses, which are tax deductible.
- If you have to refinance your mortgage to pay for your basement remodeling efforts, that may affect your bottom line come tax time. Of course, this may incur other costs, like interest, so be sure you aren’t pennywise and pound-foolish here.
- If you can remodel your basement in a sufficiently energy-efficient way, you may be eligible for a tax credit based on the cost of the energy-efficient components of the project. A tax credit is a recognition that you’ve already paid part of your taxes. If your basement remodeling project includes energy-saving appliances (like water heaters), new insulation, windows or doors, the cost of those may be eligible for a tax credit.
- Finally, if you determine that you’re able to deduct the cost of your basement remodeling project from your income somehow, be sure to check if there are any needed home repairs you can fold into the project. Home repairs — like fixing a cracked foundation or plugging a leak — aren’t eligible for deductions, but if you can include them in a larger improvement project, you may be able to include their cost on your tax forms.