Can I claim home renovations as tax deductions?

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PRESENTATION
CAN I CLAIM HOME RENOVATIONS AS TAX DEDUCTIONS?
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CAN I CLAIM HOME RENOVATIONS AS TAX DEDUCTIONS?
As a homeowner, there may be several questions
plaguing your mind about the welfare of the home
and that of your pocket. As you keep your home in
a semblance of order with certain home
improvements, a question must have crossed your
mind can I claim home renovations as tax
deductions? While you are thinking about how to
get a tax break for all the money spent on home
improvements, there are many possible answers.
However, a certain fact is that you must not
misplace the expenses from all home improvement
and beautification procedures.
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COMMON EXAMPLES OF HOME IMPROVEMENT ARE

• Installation of air conditioning
• Replacement of roof
• Addition of sunroom
• You cannot deduct the cost in the same year you
  spent the money it is utterly impossible. In
  the event that you sell your house, a well-kept
  list of expenses may result in a reduction of
  taxes at that very moment.

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There are two categories of money you spend on
your home according to tax the cost of repairs
versus the cost of improvements. Cost of capital
improvements is added to the tax basis in the
house.
What is a tax basis? To determine the amount of
your profit, you subtract some amount from the
sales price. This amount is known as the tax
basis. However, a capital improvement is a
feature that prolongs the life of the home by
adding value and increasing the adaptability to
new uses.
REPAIRS VERSUS IMPROVEMENTS
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ALSO, THERE ARE NO STRICT RULES CONCERNING THE
LIST OF QUALIFIED FEATURES. BUT YOU CAN ADD TO
THE COST OF CERTAIN ADDITIONS TO THE HOME SUCH AS

• A swimming pool
• A new central air-conditioning system
• A new roof
• An extra water heater
• Storm windows
• Home security system
• Intercom

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Nonetheless, some energy-saving home improvements
yield tax credits at the same time of making
them. Although the list is not restricted to
big-ticket items, big items seem to attract the
most amounts. On the other hand, the cost of
repairs is not included in the basis. Rather than
improvements, painting a room, fixing a gutter
and replacement of window pane is a list of
repairs.
COMPARED TO THE PAST, TRACKING IS LESS CRITICAL
In the past years, homeowners made a habit of
keeping receipts for processes that were similar
to a home improvement. When the house was sold,
every additional dime to the basis was a dime
less than the taxes of the IRS. Recently, there
is no guarantee that tracking the basis will be
profitable as home-sale profits are free of tax
for homeowners.
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WHEN YOU SELL, SAVE!
The current law shows that the profit on the sale
of the principal residence is tax-free for the
first 250,000 profit. For married couples, the
amount is 500,000 if they file joint returns.
But the condition I that the homeowner must be a
resident of the home for up to two years out of
the five years before the sale.
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• Passing this rule into law was the onset of a
  ruckus. Several advisors had interpretations that
  the homeowners would be unable to track their
  basis. The assumption was based on the fact that
  it was unearthly impossible to sweep about half a
  million in profits on a single home. More so, a
  homeowner that has resided in a home for several
  years knows that the large exclusion is
  insufficient when compared to the profit that is
  accruable to such longstanding home. Therefore,
  keeping good records is a necessity.
• When you want to determine the size of the profit
  when you sell a house, there are certain things
  to consider
• Everything you paid for the house
• Original price of purchase
• Fees

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Add all three items to the cost of improvements
that you have made in the past few years and you
will arrive at an amount known as the adjusted
basis. Prior to the 5th of August, 1997, all
sold homes whose homeowners took advantage of the
old rule where home sellers can put off tax on
their profit by simply rolling over the profit
into the new home makes the adjusted basis a bit
lesser due to reductions from the roller-over
profit itself. Now, compare the sales price of
the house with the adjusted basis. Generally,
profit that is greater than 250,000 for
individuals or 500, 000 for married couples may
be prone to taxation. On the other hand, there
are no deductions in losses on sales of personal
residences. For these reasons, it is absolutely
important and beneficial to keep a list of money
expended in an expansion, fixing up, or repair of
the house. Apart from proper documentation, it
also avoids or reduces taxes after sales.
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Be prepared!

• For any improvement, you make in the home, pile
  up the receipts in a neat stack. You may get a
  special folder to document these receipts and
  records.
• A portion of your profile on sale may be taxable
  if you have lived in your house for several
  years. Also, it is applicable to you when you
  have accumulated area housing prices after donkey
  years of living in a home. But there is a
  solution. To reduce the tax gain, you can include
  the improvements in the houses cost basis.
• You may be able to write off part of the adjusted
  basis of your home through depreciation if you
  operate a business from the confines of your home
  or put up part of the home for rent. When you do
  so, the process of selling the house will not
  include an exclusion of the amount of
  depreciation. If you took a gain exclusion break
  of about 250,000 and 500, 000, you definitely
  cannot exclude the depreciation amount. Besides,
  the repair cost to that portion of the home may
  at that moment, be deductible.

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THANK YOU
OFFICE
33 Myra Avenue RYDE NSW 2112
[phone]
www.cantoraccounting.com.au
For the purpose of the tax, home improvements are
facelifts for the home. If your home is for
residential purposes, home improvements may not
be deductible.
info_at_cantoraccounting.com.au
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