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We won’t sugarcoat it.
Getting a tax deduction for a new roof isn’t something you can simply do by writing off your taxes.
If you just bought a brand new home, a tax deduction doesn’t apply either. Does this mean you have zero chances of getting a tax deduction?
Not quite. Depreciation, tax credits, and home improvements are some ways to go about it.
In this guide, we’ll walk you through the steps you can take to deduct the cost of your expenses and alternative solutions.
How to Get a Tax Deductible for a New Roof
First, installing a new roof is not tax-deductible. However, you can use home improvements to increase the tax basis of your property, also known as: adjusted basis.
The helps offset the gain or taxes you pay by increasing your home’s base value. To learn more about adjusted basis, this might help.
That’s not all.
There are other ways to get a tax-deductible for a new roof:
- Casualties
- Depreciation
- Home improvement tax-credits
Take note, though:
- IRS categorizes any tax deductions either as a home repair or improvement. Most home repairs are non-tax deductible. For home improvements, this includes a new roof, adding a swimming pool, or adding a new central air conditioning system.
- Although some home improvements are non-tax deductible, if you use your home solely as a personal residence, any costs associated with home improvements are non-deductible.
Getting a Tax Deduction Through Casualties
Casualties are unexpected events that affect the value of your home:
- Storms
- Meteorite Strike (unlikely, but still counts)
- Fires
Since your home took a large blow from these unexpected events, this makes you eligible for claiming your loss as a tax deduction.
However, you cannot claim these casualty losses on the basis your insurance company reimburses you for any of the casualties listed here.
This means if your insurer reimburses you if a fire destroys your home, you cannot claim this loss as a tax deduction from IRS.
Getting a Tax Deduction Through Depreciation
If you aren’t using your property as a personal residence but rather a property you’re renting out, you can write off roof repairs as a tax deduction.
If you replace your roof, this counts as a home improvement. In this case, you cannot claim a tax deduction. Instead, you’ll use depreciation to deduct the cost for several years – typically between 3 to 2.75 years.
This also depends on the IRS-approved methods or payment plan you’ll take. Some IRS-approved methods can go as high as 40 years.
Finally, YOU MUST use a portion or part of your home as a rental, office space, or anything other than as a personal residence to qualify for the tax deduction.
Getting a Tax Deduction Through Home Improvement Tax Credits
Unlike the 2 previously mentioned ways, tax credits operate differently. Let’s dive into defining what a home improvement tax credit is first.
What Is a Home Improvement Tax Credit?
A tax credit is an incentive provided by the federal government for homeowners to make energy-efficient improvements to one’s home.
The way a tax credit works is by:
- Helping offset any costs associated with home repairs/changes.
- Deducting costs on your annual tax return and reduces the federal tax amount you pay for.
A tax credit IS NOT:
- A rebate or loan. Tax credits don’t work like a cashback where you receive cash after making a purchase.
- Consistent. Tax credits can change over time, meaning a tax credit for installing roof insulation that’s eligible this year might be ineligible next year.
To learn more about the eligibility of claiming tax credits in your state, check this website.
How to Get a Home Improvement Tax Credit for a New Roof
Take note that tax credits apply to energy-efficient roofs. If you’re adding a new roof or replacing a roof, you can qualify for an energy-efficient home improvement tax credit.
Factors that make you eligible for a tax deduction are as follows:
- The property should be your primary residence.
- ENERGY STAR-certified metal roofs are eligible.
- If you replace your roof with ENERGY-STAR certified products.
- Does not apply to a brand new home.
- Reflective roofs are eligible.
- Roof repairs and roof coatings are not eligible.
To apply for a roof tax credit, follow these guidelines:
- Save a copy of your roof’s Manufacturer Certification. If you want to learn more, you’ll have to create an ENERGY-STAR account and find more details here.
- Upon submitting your tax return, file Form 5695, also known as Residential Energy Credits. The form is available here.
How Else Can I Qualify for Tax Deductions?
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When facing a tax situation for your home, it helps to consult your tax attorney or advisor.
Your tax attorney can help you break down the requirements needed and give you more insight into deducting costs.
If you feel this is difficult, don’t worry.
We’ve outlined 4 ways to help you qualify for a tax deduction:
Using a Portion of Your Home As an Office
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You gain tax benefits if you use a section of your home as an office. This can help you depreciate the cost or amount of expenses associated with home improvements or repairs.
To qualify, you need to:
- Have a legitimate business
- Use a portion of your home exclusively for your business.
Simple enough, right? When done right, you can deduct 100% of your cost associated with home improvements made to your office.
Let’s say you use your master bedroom as the office for your business and install new furniture. You can depreciate the total amount or cost of your new furniture as a business expense.
For home improvements, these expenses are depreciable depending on the percentage of your office use.
This means if 30% of your home is used as an office, you can depreciate 30% of the cost used to improve your home’s central air-conditioning system, heater, etc.
Using Your Mortgage or Home Equity Loan to Pay for Home Improvements
Your mortgage could be a way to save on taxes.
Expenses associated with improvements you make to a home you recently purchased this year, for example, can be rolled into your mortgage.
Granted, the cost will accrue interest in your mortgage; however, the amount of interest you pay can qualify for a deduction on your taxes.
Rent Out a Portion of Your Home
One of the most common and easier ways to gain tax benefits is by renting out a portion of your home.
This allows you to depreciate the expenses associated with improvements you make as a rental expense.
If you add value to your home through any home improvements, you can depreciate the cost depending on the percentage of rental use.
If 20% of your property is used as a rental space, you can depreciate 20% of the cost used to improve your home.
Otherwise, if you add a capital improvement, such as adding a new bathroom, water heater, intercom system, home security system, etc., to the rental space, you can depreciate or write off 100% of the cost or expenses.
Qualify for Medical Home Modifications
While using your home as a rental property is an obvious choice for many homeowners, an unforeseen and unexpected event can qualify you for a deduction on your taxes.
For example, if you live with your grandparents, certain home modifications prescribed by your doctor allow you to write off the expense.
Modified doorways, a wheelchair ramp, or even adjustments to fixtures around your home are qualified medical expenses to help you gain tax benefits.
There’s a tricky part to it, though: If the medical home modification adds any value to your home, these will be counted as non-tax deductible.
Alternative Solutions to Help You Save Money on Taxes
As a fellow homeowner, looking for various ways to save money on taxes or getting a tax return can help minimize any amount or expenses associated with your house long-term.
For this reason, we’ve also outlined 2 solutions to help you save money.
Sell Your House
Any capital improvements that add value to your home might be able to give you a tax break once you sell it.
In effect, you could earn non-taxable capital gains once you sell your home.
The improvements made are on a case-to-case basis; however, the main idea is to increase your home’s value so that your home sells for more than what you paid.
As a result, the profit you earn can be considered a non-taxable capital gain.
To maximize the results when you sell your home, keep all the receipts and invoices for your home’s sales price and any renovations you made to your property.
Upgrade or Invest in Energy Systems
You can claim up to 26% of the cost of installing and purchasing energy-efficient products. This is made possible through the Residential Renewable Energy Tax Credit.
Some of these products include:
- Solar panels
- Solar hot water heaters
- Wind turbines
- Geothermal heat pumps
The best way to ensure you can save through upgrading or installing energy-efficient products is by looking for ENERGY-STAR certification.
A water heater with ENERGY-STAR certification is one good example. Other energy-efficient product categories include:
- Insulation (Weather stripping)
- Biomass Stoves
- Storm Windows & skylights (ENERGY-STAR Certified)
- Air conditioners
With several energy-efficient product categories to choose from, you can add a lot of value to your home by installing or upgrading one or two of these options.
Make sure to keep track of your receipts and invoices when you submit your tax return and file the form 5695 or Residential Energy Credits form.
FAQs
How Do You Determine Your Profit When Selling Your Home?
First, you’ll have to determine the total cost basis of your home. Here are 3 key factors to note:
- Calculate everything you’ve paid for the house: original sale price, fees, etc.
- Add the cost of all the improvements you’ve made over the years. This will give you the adjusted basis or grand total.
- Compare your adjusted basis to the sale price of your home.
Take note, earning a profit from selling your home may be taxable. Generally though, if you’ve lived in your home for 2 to 5 years prior to the sale, then:
- For single filers, the first $250,000 of profit is tax-free.
- For joint filers, the first $500,000 of profit is tax-free. (This applies to married couples)
Are Roof Repairs and Home Foundation Improvements Deductible?
A home repair such as replacing your shingles or fixing your foundation is not tax-deductible because repairs don’t add value to your home.
Conclusion
Cost basis aside, you can save money on taxes and qualify for a tax-deductible on your roof given you follow the conditions, steps, and ways mentioned in this article.
Make sure to have a folder for keeping all the records and receipts associated with your home. Furthermore, allocating a proper cost basis can help reduce any taxable gains if you decide to sell your home.
