A new roof can protect your home from the elements and help you avoid costly damage associated with leaks and mold. But can it also save you money at tax time? Read on to learn the potential tax benefits associated with repairing or replacing your roof.
Can I Write it Off?
Unfortunately, in almost every instance, you won’t be able to deduct the cost of a new roof on your taxes, because it is considered a nondeductible home improvement. That said, a new roof can affect your taxes down the line by increasing the basis of your property. In most instances, the basis for your house is the amount you paid for the property or the cost to build it.
Home improvements will generally increase the basis of a home. This is called the adjusted basis. A property gain, on the other hand, is the increase in the value of a home. The higher this gain, the more taxes you will have to pay when you eventually sell your house. The adjusted basis will help offset the property gain by increasing the base value of the property.
Some examples of home improvements that can increase your property basis include:
- Replacing the roof
- Rewiring the house
- Paving the driveway
- Adding an addition to the home
- Installing central a air conditioner
You will have to keep thorough records of all home improvements that increase the basis or get some help determining the adjusted basis of your home. As you improve your property and increase the basis, the gain on your home will decrease when you sell it. If this all sounds complicated, consider consulting a tax expert for more information.
Improvements vs. Repairs
From the perspective of annual taxes, the money you spend on your house breaks down into two different categories: improvements vs. repairs.
Capital Improvements
With these, you add the cost of any improvements to your tax basis in the property. Your tax basis is essentially the amount you will subtract from the sales price to determine your profit. Capital improvements refer to anything that adds value to your house, adapts it to new uses or prolongs its life.
Bear in mind that capital improvements are not necessarily restricted to expensive, big-ticket items. Qualifying improvements include adding:
- Storm windows
- An extra water heater
- A home security system
- An intercom system
Some energy-saving home improvements can also bring you tax credits.
Home Repairs
Unlike capital improvements, the cost of home repairs cannot be added to your basis. Examples of repairs include:
- Painting a room
- Repairing a gutter
- Replacing a windowpane
Does it Make that Big of a Difference?
In the past, it was crucial for homeowners to save records and receipts for anything that might potentially qualify as a home improvement. Every dollar added to the basis was one less dollar the IRS could tax when the home was eventually sold. These days, however, home-sale profits are tax-free for many homeowners, and there’s no guarantee that tracking your basis will pay any benefit at all.
Under current laws, if you have owned (and lived in) a property for at least two of the five years leading up to the eventual sale, the first $250,000 of profit is tax-free for single filers, and the first $500,000 of profit is tax-free for married couples filing joint returns.
Still, it makes sense to keep track of whatever you spend to repair, improve or expand your home, so you can avoid or reduce taxes when you sell. Whether it’s a new roof, a new furnace or some other type of upgrade, it could end up saving you some money down the line, especially if property values ascend in your local market.
A to Z Roofing has earned a reputation as one of Colorado’s leading roofing contractors by using the best roofing materials, providing unrivaled workmanship, and delivering top-notch customer service.
A to Z Roofing specializes in commercial, residential and multi-family roofing and repair. A locally owned company, A to Z has been operating continuously in Colorado for a quarter of a century, serving the roofing needs of homeowners and businesses throughout the entire Colorado Front Range. Whether you need a new roof or a timely repair, contact our team for flawless service at a rate that will leave you smiling.