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Home Improvement Guide 2007
On the money
Whether it's a fresh coat of paint or a total home renovation, sooner or later it comes down to paying for it.
On the money
Tax-deductible home improvements
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Also look for credit details on the packaging. Most manufacturers provide energy ratings and many have added labels alerting buyers that the item qualifies for one of the new tax credits.

Don't forget to check on your state's energy tax breaks via the Database of State Incentives for Renewables & Efficiency. Many also offer tax incentives which might be more generous than the federal credits, says Anne-Maire Fisher with CBIZ Accounting, Tax & Advisory Services in Chicago.

Medical renovations
Some residential modifications also can provide deductions that could reduce a tax bill. Most of these, however, are in the medical area, which could mean costly upfront expenses.

You can include as medical expenses amounts you pay for special equipment installed in a home or for home improvements when the main purpose is medical care for you or your spouse. You can then deduct these amounts as long as you follow your doctor's orders and the IRS's rules.

LeValley says the IRS has a "bright line" standard: "Anything that increases the value of the home is going to offset the deduction."

However, says Luscombe, "The IRS on the whole has been getting more generous with medical deductions. And with respect to the home, something that is helpful to a disabled person but doesn't increase the long-term value of the home is likely to be able to help reduce your tax bill."

If you need, for example, to add a chair lift to get up and down the stairs, the IRS generally considers that a legitimate expense. Other deductible projects that make a house more accessible for a handicapped resident or individual with chronic medical problems are:

Deductible improvements for handicapped access:
Adding ramps
Widening doors and hallways
Lowering counters and cabinets
Adjusting electrical outlets and fixtures
Installing railings, support bars and other bathroom modifications
Changing hardware on doors
Grading exterior landscape to ease access to the house

In addition to deducting the actual remodeling costs, you also can deduct the ongoing expenses to maintain or operate any medically prescribed equipment.

Partial medical deductions
If you do make changes to your home that add to the property's value, you might still get some tax savings. "You really have to look at how much it increases the value," says Fisher. "If the improvement is more than the increase, you can deduct the excess."

Fisher offers a simple example: A person suffering from cystic fibrosis is told by physicians to maintain a constant temperature and high humidity in the home. The homeowner installs a central air conditioning unit costing $1,300, but it only increased the value of the home by $800. In this case, the $500 excess is deductible as a medical expense.

-- Posted: April 4, 2007
 
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