Financial advisors and tax professionals whose clients are repairing or renovating their home or another real estate property can help them unlock some savings in the process.
The many available strategies for tax savings tied to home improvement begin with the question of whether the client is working on their personal residence, a house or apartment where they live but also operate their own business, or a property that they have invested in as a real estate endeavor, according to certified public accountant Miklos Ringbauer of Los Angeles-based
"That's exactly where the true value of a financial advisor or a tax professional comes in to proactively support the taxpayer," Ringbauer said.
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For a personal home, the clients may not know that
"Sometimes state incentives are much more than the federal government's," Ringbauer said, citing the tax advantages for California taxpayers tied to widespread droughts in the state a couple of years ago. "The local governments and the state encouraged the taxpayers to create these drought-resistent environments, and they gave a lot of financial support."
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Even though many basic home improvements such as fixing a leak, painting a bedroom or replacing a broken window pane won't typically be eligible for tax savings, the clients may be forgetting that installing a ramp, rails or a pool, widening doors for a wheelchair or redoing a bathroom could draw deductions as a medical expense.
"Many taxpayers don't think about this," Ringbauer said. "If it increases the value of the home, then you may not be able to take the deduction, but the good news is that it increases your basis."
For clients who run
"If I needed extra capital, I have the ability to take a deduction on that mortgage payment," Ringbauer said. "It's incredibly valuable to reduce my self-employment business income."
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When it comes
The biggest capital investments into the property, such as a roof replacement or the installation of a new bathroom, could result in tax advantages for the owner as well, through so-called
"I have positive cash flow, but for tax purposes, I wiped out my income in the process. And then even throwing a tax credit on top of it can be significantly beneficial for a real estate investor," he said, noting that there is a distinction for the IRS and other agencies between the large capital projects and standard repairs such as fixing a door. "It's very important, and that's where many taxpayers, especially if they are self-preparing returns, run into challenges."