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Home improvement projects can be expensive. Whether you are painting your home, adding a new roof or have decided to add on a room, you probably should speak with someone who can provide tax advice for homeowners. Keep in mind, the type of loan you take out could impact whether the interest and other loan costs are tax deductible.


Type of Home Improvement Projects

tax advice for new homeownersShould a homeowner elect to take a home equity loan, before they can deduct interest on the loan from their taxes, the project must increase the home value. For example, a homeowner cannot take out a loan, paint their home, patch a roof and deduct the interest payments. Simple cosmetic improvements will not give you a tax break on interest payments. The project must specifically add to the sale value of the home and may include projects like:

  1. Replacing a roof – A new roof would qualify the homeowner to deduct interest payments on their home equity loan.
  2. Beautification projects – Adding a swimming pool or doing a complete landscaping job with a home equity loan could qualify for a tax deduction.
  3. Significant improvements – Adding a new heating system, replacing current appliances with built-in appliances or adding insulation to the home may qualify.
  4. Expansion projects – A homeowner who adds a garage, a sunroom or a porch may find the interest on a home equity loan will be eligible for deductions on their tax returns.


Limits on Tax Deductions

getting ready for tax seasonThere are specific limits put in by the Internal Revenue Service regarding deduction of interest payments on home equity loans. These limits are based on the value of the loan, not the amount of interest paid.  Married couples could qualify to deduct the interest on a loan as high as $100,000. However, to qualify for this amount, the couple must file a joint tax return and your home must have the value to qualify for this amount.

To determine the maximum amount of the loan, you would have to first determine what the fair market value of the home is and then deduct any loans that are outstanding. The "remaining" value is what you would get after a sale. The maximum amount of the home equity loan cannot exceed this amount. Therefore, if you have a home equity loan of $100,000 and your net gain on the sale of your home after outstanding loans is estimated to be $75,000, the interest you can deduct can only be on $75,000.

Home improvement projects can increase the value of your home immediately or over time. However, if you are merely making cosmetic changes to the home, you may find there are no tax benefits associated with these improvements. Keep in mind, if you refinance your home using a "cash-out" option, there are certain tax benefits that you may be entitled to that you could not get using a home improvement loan. Consider reaching out to someone who understands the tax code if you are considering any type of loan to improve you home. Tax professionals who provide tax advice for homeowners can help you determine what type of loan is best for your needs as well as help you determine if you may get certain tax benefits if you elect to use a home equity loan.


Doreen M. has an extensive portfolio of work that includes business titles, jobs and careers titles and legal titles. During the time she has been contributing to online sites, she has maintained a steadily growing base of articles on evergreen topics that continue to appeal to readers.