As tax preparation season gets underway amidst a busy home improvement season here in NJ, I wanted to compile some tips and reminders for homeowners, particularly those who have done home renovation or addition work in 2016. There are several federal tax programs that expired on December 31st, 2016. Unless these are renewed, 2016 Tax Year will be the last year to take advantage of these.
1) Federal Residential Energy Efficient Tax Credit Expires after 2016 Tax Year!
This program enables homeowners as much as a $500 tax credit on newly installed energy efficient appliances, insulation or energy efficient windows ($200 max for windows). $500 is the full deduction amount per tax payer for all years of the program (2011- 2016).
2) Residential Renewable Energy Tax Credit - Expires after 2016 Tax Year!
This program enables homeowners to get as much as 30% of the cost of the renewable energy system as a tax credit. This includes solar electric and water-heating, fuel cell, wind-energy and geothermal heat-pumps.
3) Save your receipts. The current tax laws allow homeowners to have $250K (single) or $500K (married) capital gains on the sale of their primary residence without having to pay capital gains. Appreciation above this amount would be subject to capital gains. Many expenses (realtor fees, loan origination costs, etc.) can offset the appreciation amount as can capital improvement expenses (materials and labor). As NJ home prices are going higher and higher, those Home Depot receipts and General Contractor invoices will be valuable currency when it comes time to sell your home.
4) NJ sales tax exemption. In NJ, professional services (such as architecture) are not required to charge sales tax. Home improvement and repair services are required to charge NJ sales tax unless the home improvement serves to increases the value of the home and homeowners provide the ST-8 form (below) to the contractor. It is important for homeowners and contractors to understand the distinction that NJ applies to improvements and repairs that either do or do not increase home value. It is also important for homeowners to provide their contractors with the ST-8 form (Certificate of Exempt Capital Improvement) as a record of the addition, remodeling or renovation project.
5) Home improvements for medical needs. Certain home improvements done for medical needs may be eligible as a tax deduction. The bar for medical expense deduction is relatively high. Medical expenses totaling 10% of income or 7.5% for income of those over 65 (the over-65 expires in 2016) may be deducted but certain home improvements may be lumped in with these other medical expenses to reach and exceed the threshold. Improvements may include ramps, grab bars, relocated cabinets, outlets and even an air-cleaning systems for asthma sufferers.
6) 203K Loans. Of course home mortgage interest is tax deductible, but interest on 203K Home Improvement Loans is also tax deductible when the loan is incorporated with the home mortgage.
Good luck with the tax man!