Most home improvements don’t earn you deductions or credits on your federal or Oregon income taxes, although there are some exceptions. Take a look at the home-related spending that you can claim to help reduce your income taxes.
Home Improvements for Medical Needs
Improvements to your home to help with a medical condition are deductable on your federal income tax if you itemize deductions. That means the cost of the work you did in 2018 can be deducted from your taxable income before calculating your tax due. But if the renovations increase the value of your house, you must deduct the amount of the increase in value before claiming the cost as a medically related expense. Wider doorways and halls, wheelchair ramps, handrails, roll-in showers, and countertops and cabinets that have been lowered for easier access all qualify as medically necessary home improvements.
Solar-Energy Tax Credit
The federal government has ended its tax-credit program for residential geothermal heat pumps, wind turbines, and fuel cells, and Oregon also let its Residential Energy Tax Credit program expire. But the federal government still does give income-tax credits for photovoltaic cells. If you installed a solar system that began providing electricity in 2018, you can deduct 30 percent of the cost of the system and the labor to install it.
Tax credits differ from tax deductions, which reduce the amount of your taxable income. A tax credit is an actual reduction in the amount of tax you owe the federal government. The federal tax credit was 30 percent in 2018 and will stay at that level in 2019 before it shrinks to 26 percent in 2020 and 22 percent in 2021, its final year. The credit has no limit. So, for example, if you spent $25,000 on a solar system in 2018, you can get $7,500 off your federal income taxes.
Solar in Portland Although Oregon ended its tax-credit program for residential renewable-energy projects, both Portland General Electric and Pacific Power, which serves part of the Portland area, offer homeowners with photovoltaic systems an incentive of 45 cents per watt of electricity generated, up to $3,600 per home.
Paying for Improvements with Your Mortgage
The interest payments on your home mortgage are deductible on your federal income taxes. You can turn that to your advantage by including extra money in your mortgage to pay for home improvements. Those renovation costs then will be part of your mortgage-interest deduction.
Other Home-Related Deductions
On your 2018 federal income taxes, you still can claim deductions for:
• Mortgage points
• Local and state property taxes
• Interest payments on home-equity lines of credit and loans.
• Home office (but only if the office is your primary place for business, you use it regularly, and it’s not used for anything else).
[Updated from a blog originally published in May 2018]