what home improvements are allowed?
- Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items added to a taxpayer’s main home last year. Qualified improvements include adding insulation, energy-efficient exterior windows and doors, and certain roofs. Do not include the cost to install these items.
- The other part of the credit is not a percentage of the cost. It includes the installation costs of certain high-efficiency heating and air-conditioning systems, high-efficiency water heaters and stoves that burn biomass fuel. The credit amount for each type of property has a different dollar limit.
- This credit has a maximum lifetime limit of $500. Taxpayers may only use $200 of this limit for windows.
- A taxpayer’s main home must be located in the U.S. to qualify for the credit. The non-business energy property credit is only available for existing homes.
- Be sure to have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. Taxpayers can use this to claim the credit. Do not attach it to a tax return. Keep it with tax records.
- Taxpayers may claim the credit on their 2016 tax return if they didn’t reach the lifetime limit in past years. Under current law, Dec. 31, 2016, was the deadline for qualifying improvements to the taxpayer’s main U. S. home.
Residential Energy Efficient Property Credit
This tax credit is 30 percent of the cost of alternative energy equipment installed on or in a home. This includes the cost of installation.
Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
- There is no dollar limit on the credit for most types of property. If the credit is more than the tax owed, carry forward the unused portion of this credit to next year’s tax return.
- The home must be in the U.S. It does not have to be a taxpayer’s main home, unless the alternative energy equipment is qualified fuel cell property. The residential energy efficient property credit is available for both existing homes and homes under construction.
Business use of your home.
The home office deduction is available for homeowners and renters, and applies to all types of homes.
Simplified OptionThis new simplified option can significantly reduce the burden of record keeping by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.
Regular MethodTaxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.
Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Requirements to Claim the Home Office DeductionRegardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:
- Regular and exclusive use.
- Principal place of your business.
Regular and Exclusive Use.You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
Principal Place of Your Business.You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business.
You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:
- Your business use must be for the convenience of your employer.
- You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.