Smart Home Improvements that Pay Off: Increasing Value and Tax Savings
Holly Wanegar, CFP®
Associate Vice President & Wealth Advisor
When it comes to home renovations, homeowners often wonder which projects are worth the investment. While every home is unique, certain upgrades have consistently proven to increase a property's value while also offering potential tax benefits. By carefully selecting the right improvements, you can enhance your living space, boost your home's marketability, and potentially enjoy tax deductions or credits.
Boosting Resale Value
One of the primary goals of many homeowners when undertaking renovations is to increase their property's resale value. According to industry experts, the following home improvements tend to have the highest return on investment (ROI):
Kitchen Remodel: A well-designed, modern kitchen is a major selling point for most buyers. Updating cabinetry, countertops, appliances, and fixtures can significantly boost your home's value. According to Remodeling Magazine's Cost vs. Value Report, a minor kitchen remodel can recoup around 72% of its cost at resale.
Bathroom Renovation: Like kitchens, updated bathrooms are highly valued by buyers. Renovating bathrooms, especially adding or updating a bathroom, can yield an ROI of around 60-70%.
Exterior Improvements: Enhancing curb appeal with new siding, windows, a new roof, or a fresh coat of paint can make your home more attractive to potential buyers.
Energy-Efficient Upgrades: Installing energy-efficient windows, insulation, and heating/cooling systems not only reduce utility bills but also appeal to environmentally-conscious buyers.
Deck or Patio Addition: Expanding outdoor living spaces by adding a deck or patio can provide a good return, with estimates ranging from 60-80% of the project cost.
Basement Remodel: Finishing a basement to create additional living space can be a relatively cost-effective way to increase usable square footage and potentially recoup 70-75% of the investment.
Tax Deductions and Credits
While increasing your home's value is a significant motivator for renovations, savvy homeowners also consider the potential tax benefits of certain improvements. Here are some home improvements that may qualify for tax deductions or credits:
Energy-efficient home improvements: You may be eligible for federal tax credits for installing solar panels, wind turbines, geothermal heat pumps, insulation, doors, windows, and certain HVAC systems. These credits can significantly offset the costs of making your home more energy-efficient.
Medical home improvements: If you make modifications to your home for medical reasons (e.g., installing ramps, widening doorways, adding handrails), you may be able to deduct the costs as qualified medical expenses, as long as you itemize deductions.
Home office improvements: If you use part of your home regularly and exclusively for business purposes, you may be able to deduct a portion of the costs related to improvements made to that area.
Rental property improvements: If you own a rental property, you can deduct qualified repair and maintenance costs from your rental income. Additionally, you can depreciate certain capital improvements over time.
Energy conservation improvements: Some states offer tax credits or deductions for making your home more energy-efficient through insulation, window replacements, and other upgrades.
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Maximizing Your Investment
To maximize the return on your home improvement investment, it's crucial to strike a balance between adding value and meeting your personal needs and preferences. Before embarking on any major project, research the housing market trends in your area and consult with local real estate professionals to ensure your plans align with buyer preferences.
Additionally, keep meticulous records and receipts for all home improvement projects, as these will be essential when claiming tax deductions or credits. It's also wise to consult a tax professional to ensure you comply with all requirements and maximize your potential tax savings.
By carefully selecting the right home improvements and taking advantage of available tax incentives, you can enhance your living space, increase your property's value, and potentially enjoy significant financial benefits. With thoughtful planning and execution, your home renovation projects can be a worthwhile investment that pays dividends for years to come.
Wondering if you're making the right home improvement choices to maximize your investment? At WHZ, our strategic Plan Well. Invest Well. Live Well.™ financial planning process looks at your full financial life - from smart home improvements to reducing taxes – in order to help you achieve your goals and to provide Absolute Confidence. Unwavering Partnership. For Life. Call (860) 928-2341 or book a complimentary consultation on our website.
Authored by Associate Vice President, Wealth Advisor Holly C. Wanegar, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.
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