Who Qualifies for Home Improvement Tax Credit?
There are a number of ways by which a person can reduce his tax liability or increase tax refund, of which home improvement tax credit is one. Home improvement includes renovation of home or permanently adding certain items to the house to increase its value as also its habitability. Hence, loans taken for this purpose are eligible for tax deduction. Not only such loans, but also expenses of certain nature amount for qualification for tax credits and deductions. Tax credit differs from tax deduction in that the former reduces the tax liability of a person, whereas the latter causes reduction in the taxable income of a person.
Improvements which come under the purview of home improvement tax credit are:
- Installing energy-efficient items like solar panels, geothermal heat pumps, water heaters that are solar-powered or fuel cells.
- Methods adopted for heating or cooling the home, such as sealing doors, windows, pipes and so on.
- Home improvements, done specially for ailment reasons, such as installing elevator for heart patients to prevent them from climbing the staircase.
- Improving the air filtration of the house by installing centralized air-conditioning systems, removing damp walls, etc helps asthma patients.
- Expenses incurred for accommodating handicapped or disabled individuals such as railings along the staircase, widening the doors of the home, making modifications in the kitchen for helping disabled people, etc.
- Using water heaters that run on certain fuels like propane, gas, oil, etc. is helpful for people living in scarcely populated areas.
- Selecting better doors or windows and making roof improvements are also eligible for the credit.Home improvements can be of two types- splurging on luxuries or addressing basic problems that need immediate attention. Improvements that add to the home’s functional space are valued longer than those that just decorate the look of the house.
Obtaining the loans
For availing loans for home improvement, we need to make an estimate of the amount of money required for such purpose and submit it to the financier or bank. After verifications with the constructors, the financier visits our home. However, some banks inspect the receipts of the payments we make to the contractors and then sanction the loans.
Tax Credit for Home Improvement
The IRS (Internal Revenue Service) lays down strict guidelines by which a home owner can claim home improvement tax credit. Tax benefit for this loans can be claimed just like home loans. Tax credit availed is a percentage of the expenses incurred on home improvement, up to a certain amount. When arriving at the decision for making renovation, one must consider the amount of investment to be made. Although cheap improvements still qualify for tax credit, one can get the maximum benefit out of it by carefully weighing all the qualifications as some improvements do not carry tax credit benefit.
The amount of tax credit is 30% of costs incurred, with no upper limit on the total home improvement tax credit amount. This rate is applicable till 31st December, 2016. Individuals can also avail of income tax benefit of interest up to Rs.30, 000 on the loan (U/S 24 of the Income Tax Act) on self-occupied house. For rented property, tax deduction is not bounded by any limits.
It is advisable for individuals to maintain precise records of all expenditures on their renovations and the receipts of such expenses as it would be of great assistance to them when it is time to claim the home improvement tax credit.