Diamond Tax Consultants Blog

A lot of people wonder if the home improvements and home repairs they perform on their house over a year are tax deductible or eligible for any money back on income taxes at the end of the year. The short answer is: Maybe.

Generally, there are three ways a home improvement might benefit you financially come tax time. You may be eligible for some sort of income tax relief if:

• Your home improvements are being performed for medical reasons
• Your home improvements include certain energy-efficient upgrades to your home
• You are going to be using a home equity loan or home equity line of credit to actually pay for your home improvements

Before we get into those three scenarios, have you benefited from our affiliate service with I.R.E Repair Services? It was founded to help homeowners find reliable, high-quality home improvement contractors and home service professionals with the convenience of just a phone call or email. Everyone knows that finding reputable, quality contractors can be quite a difficult feat.  Our goal is to save the homeowner time and money, by having a network of pre-screened professionals in a large variety of home improvement specialties so the homeowner can complete their special project confidently and worry-free. 

Now, let’s discuss the basics of how home improvements work with taxes in the United States.

Home Repair vs. Home Improvement

First, it’s important to remember that there is a difference between home repair and home improvements, especially from an income tax perspective. Simply fixing things that are broken or worn out around your home are generally considered “home repairs” and generally do not count towards any sort of tax deduction or tax credit. However, if you replace something that is worn or broken with something new (such as more energy efficient windows or doors), then that may be seen as a home upgrade or home improvement and contribute to your tax refund.

The good news is that if you need to perform a home repair at the same time or in the same area of your home as the home improvement, then you may be able deduction the cost of the home repair on your taxes. The difference between a repair and an improvement on your home is not always cut and dry so your specific situation may dictate exactly how you can count certain home projects on your taxes.

Home Improvement Tax Deduction vs. Home Improvement Tax Credit

It’s also important to remember that there are different ways to increase your income tax refund with home improvement projects. In some cases you may be eligible for a tax deduction and in other cases you may be eligible for a tax credit. The difference could be substantial.

A tax deduction lowers your “taxable income” amount while a tax credit takes a set amount right off the taxes you owe. So If you make $30,000 per year and you get a $1,000 tax deduction then the government is really only taxing you on $29,000. The amount you get back from a tax deduction depends on your income tax bracket. If you’re in the 30% income tax bracket then a $1,000 tax deduction means you’d “get back” about 30% of that money in a tax refund. In this case it would be about $300.

If you get a $1,000 tax credit then are are still being taxed on $30,000 but you get to take $1,000 off the amount you owe the government (if you are getting a tax refund then you might get an extra $1,000 back!).

If you have an account or use any sort of income tax software to do your taxes, you shouldn’t have to worry too much. They can take care of the math and some of the tax software programs will even look at a couple different scenarios and pick out the one that is most beneficial to you.

Home Improvements for Medical Reasons

If you or someone living in your home has a medical condition that warrants a home remodelling or home improvement, then the cost of that project may be able to count towards a tax deduction. You will most likely need a doctor to write a letter stating what improvements are needed to your home for medical conditions and why, you will need to itemize the your deductions and keep track of the work being done with a breakdown of costs and the project will have to be 7.5% or more than your annual adjusted gross earnings for that year.

Here are some of the medical conditions that often require home improvements or upgrades to a home that could be tax deductible:

Home Improvements for Wheelchairs: People suddenly needing a wheelchair must often perform extensive work on their home to make it more livable. Some home improvement projects that could qualify for tax deductions in this case are adding elevators, widening doorways, adding wheelchair ramps, lowering kitchen cabinets, installing bathroom handrails and even lowering light switches.

Home Improvements for Allergies or Breathing Problems: People with breathing issues are often told by doctors to improve their home’s air filtration system, install central air-conditioning and remove and replace any drywall that may be damp and moldy.

Home Improvements for Other Physical Ailments: Other ailments or injuries requiring physical rehabilitation could also warrant specific tax deductible home improvements such as hot water spas, therapeutic swimming pools or other additions to a home to accommodate special medical equipment.

IRS Publication 502 has more detailed information about exactly what may and may not qualify for a medical home improvement tax deduction.

Home Improvements to Increase Energy Efficiency

Home improvements and upgrades to increase your home’s energy efficiency are numerous and constantly changing. It’s actually difficult to keep track of all the rebates and tax incentives you may be eligible for because there are federal regulations, state regulations and even separate utility rebates available in some cases.

In 2008 there were a number of energy efficient upgrades that were no longer eligible for tax credits or deductions (they were part of the 2005 Energy Policy Act), but many of those items are once again eligible for tax credits in 2009 and 2010 due to the new American Recovery and Reinvestment Tax Act of 2009. There are lots of different options, but now tax credits are available for 30% of the cost of certain energy efficient upgrades, up to $1,500! That means that if you spend $3,000 in qualified energy efficient home improvements, you get a tax credit of about $1,000 (30% of $3,000). This is a big improvement over the previous energy efficient home improvement tax credits available in the past.

Some examples of energy efficient home improvements for existing homes that could impact your 2009 and 2010 income taxes:

• New energy-efficient windows and doors
• Adding new insulation
• Upgrading to a metal or asphalt roof (Metal and Asphalt)
• Upgrading to a more energy efficient air conditioning or heating system
• Newer non-solar water heaters
• Purchasing a biomass stove

Other home improvements that are eligible for tax credits for new and existing homes that extend into 2016 are:

• Geothermal heat pumps
• Installing solar water heaters
• Installing solar panels
• Installing wind energy systems or fuel cells

There are, of course, some restrictions on exactly what is eligible for the home improvement tax credit and what isn’t. Before you purchase any new items or upgrade your home you may want to read all the details of the recently updated . 

Additional Home Improvement Tax Savings

There are other ways home improvements can save you money when you file your income taxes. Firstly, if you borrow money from a home equity loan or a home equity line of credit then you may very well be able to use the interest you paid on the loan as a tax deduction. This is just like using the interest you pay on a mortgage loan as a tax deduction, and obviously the larger the home improvement loan, the more money you’ll pay in interest (and the more you’ll be able to deduct at the end of the year).

The other way to use a home improvement to your advantage is to donate any extra materials or supplies at the end of your project to a registered non-profit. If, for example, you’re installing new hardwood floors you probably would not be able to deduct the cost of the wood because it isn’t an energy savings, but if you had several hundred dollars worth of wood left over (which is quite possible) then you could donate that to a non-profit school or church that could use it for a project. Be sure to keep receipts and give the wood a real market value when you use your donation as a tax deduction.

And, of course, most larger home improvements impact the value of your home positively, so if you’re trying to sell your home any home improvement could affect the selling price and appraisal value, though some home improvement projects do affect the value of your home more than others.

Summary

Overall, you can count some home improvements as a tax credit or tax deduction if they are for medical reasons or if they fall into one of the many energy-savings home improvement categories. You may also be able to use your home improvement project to deduct additional interest or donated amounts from your taxable income at the end of the year. Everything above is included for informational purposes, but obviously your tax and financial information may affect how much of these credits and deductions you can really use. Before you do any home improvement you will definitely want to speak to a qualified tax accountant to see exactly how certain projects will impact your income tax payments.

It really can pay to start that home improvement project this year! Under the right conditions a home improvement project completed this year could lead to big home improvement tax credits and deductions when you file your taxes next year!

We are exciting to announce our newest service for businesses! 

For the past several years, we have helped a number of our clients to start, grow, and manage their business venture. Our efforts have been so successful that we have decided to open up our business coaching services to others.

Why consider our business coaching services? Here are the top 7 reasons why small businesses fail:

• 1. You start your business for the wrong reasons.
• 2. Poor Management
• 3. Insufficient Capital
• 4. Location, Location, Location
• 5. Lack of Planning
• 6. Overexpansion
• 7. No Website

Getting Started                          

Are you a new business owner or investor? Then the Getting Started program is just right for you.

The Getting Started program starts off with review of your current tax situation. You’ll get an email from your personal tax specialist and some initial steps.
You have unlimited email access to your specialist. You’ll never have to worry about the cost of asking your accountant a quick question. It’s all covered as part of the program.

The Getting Started program includes the preparation of a federal and state individual income tax return and a federal and state business tax return.
AND you are automatically enrolled in the coaching program as soon as you start in the Getting Started program.

The Getting Started program is very affordable at just $350 to start and then $50 per month therafter.

Grow Your Business with Diamond Tax Consultants Tax Strategy, Marketing & Unlimited Consulting

If you’ve been in business for awhile and are having problems growing your business, utilizing marketing technicques, and know you’re paying too much in taxes because you do not have a tax strategy in place, then this is the program for you. Or, if you’ve hit a tough spot in this recession and are considering closing your business, then this is the program for you.

Will you be one of those happy clients that Diamond Tax Consultants saves thousands of dollars each and every year? Find out FREE with a tax review.
The Tax Strategy process starts off with a review of your current tax and business situation, a phone call with Shawn and other experts as he suggests for your particular case.
You’ll receive a write-up of the strategy along with action steps for you to take to get the tax savings and growth your business needs.

You’ll have your own tax professional consultant who will be available for consultation.

And you’ll get your federal and state individual income tax return and one federal and state business tax return provided as part of the course.

Plus you are automatically enrolled in the coaching program!

The Tax Strategy with Diamond Tax Consultants is just $500 for the strategy process and then $100 per month therafter.

Diamond Tax Consultant’s Private Clients

As one of our Private Clients you will receive an

1. Updated comprehensive strategy each year,
2. Unlimited email and phone consultation (subject to scheduling),
3. Invitation for you and a guest to our network marketing events and personal tax and business education seminars,
4. Bookkeeping
5. Invitation to our personal mastermind sessions, and
6. Automatic enrollment in the coaching program.

The Private Coaching with Diamond Tax Consultants is just $1000 for the coaching process and then $200 per month therafter.

There is a qualification process to go through to be part of Diamond Tax Consultant’s Private Clients and it is limited to just 10 clients per year.

Customized Business Coaching Plans are also available which includes the option of simply registering for the monthly coaching subscription for either $50, $100 or $200 a month which provides unlimited coaching support and an a la carte services plan. Find out more by giving us a call at 888.456.0800 or use the PAY NOW function of our website and choose anyone of our business coaching offers (Getting Started, Grow Your Business, or Private Coaching) www.diamondtaxconsultants.com/services.htm

During the first round of the government’s homebuyer tax-credit program, only first-time purchasers could qualify for up to $8,000 in tax credits. But this time, many current homeowners could get in on the deal, too.

The credit is renewed to home purchases under contract as of April 30th, as long as the purchase closes within 60 days. (That means you don’t have to rush to close escrow by the end of this month. Whew!)

On Thursday, the House and Senate passed an extension of the popular homebuyer program that would allow people who have owned their homes for at least five years to buy a new home and get up to $6,500 off their tax bill. Why the switch?

The move may be aimed at luring higher-end buyers into the real estate market, says Kevin Cottrell, a principal and cofounder of Kelsey Cottrell Realty in St. Louis. During the initial incentive program, which ends Nov. 30, over 70 percent of the contracts his firm inked were under $300,000, and 90 percent were under $400,000, the lower end of the real-estate spectrum. By extending the credit to current homeowners, the federal government is aiming to move a more upscale segment of the market into “a more normal cycle of buying and selling,” where people might move to a better home every seven or eight years, Mr. Cottrell says. The five-year ownership requirement discourages people from flipping houses the way they did during the real estate bubble.

President Obama is expected to sign the bill quickly. Here’s what it means for you:

– First-time homebuyers still qualify for up to $8,000 in tax credits; those who have owned their homes at least five years qualify for up to $6,500 in credits.

– Purchases must be secured by April 30, 2010 and closings finalized by June 30.

– Single taxpayers with an adjusted gross income under $125,000 (under $225,000 for joint filers) are eligible for the credit’s full benefits. Those with incomes up to $145,000 (single) or $245,000 (joint) may receive partial credits.

– Homes worth $800,000 and under are eligible for the program.

– Members of the military serving outside the United States for more than 90 days will have until June 30, 2011, to qualify for he incentive.

– The program is expected to cost the federal government $10.8 billion in lost taxes

Due to the economic conditions, all we have been hearing is words like bailout, economic relief, and stimulus plans. Folks are still being laid off, down sized, right sized, or what ever the politically correct terminology is these days. Bottom line, everyone in some way has been affected from these recessionary times and can use some extra cash in their pocket.

 In view of the foregoing, we have decided to use our resources to help bail you out!  

There are 3 ways we can help you put cash in your pocket today. They are:

• A Free Tax Return Review
• Home Based Business
• Free Tax Return Preparation

We consistently find errors and overlooked deductions when we review tax returns. If Diamond Tax Consultants has not prepared your tax return, we will for a limited time review your tax return free of charge. 

If we learn about tax deductions you could have qualified for in any (or all) of the past three years, you can file Amended Returns (Form 1040X) and not only get a second refund on tax returns you’ve already filed, but also collect 4% interest on the amount of time the IRS held your money.  Follow the link to our website to find out what you need to do to take advantage of this limited time FREE offer. REVIEW MY TAX RETURN

 Do you have a home-based business? If so, congressional law now gives home-business owners — and only home-based business owners — between $300 and $600 cash every month, all year long, just for running an active part time business from home. Why? Because it’s good for the economy and will help in a big way to bring America back to prosperity. Do you know anyone who has a part time home-based business? If so, this information is for them. If they are currently working and have a home-based business, we can help them receive these bailout funds on a weekly basis without the need to file a tax return to receive it. Contact our office by visiting our website or call us directly at 888-456-0800

As a final bail out incentive, we are conducting the FREE tax return turn drawing in the month of November.  This will allow the winners to claim their FREE tax return services at the beginning of the tax season vs. our annual February drawing.

 To participate, all you need to do is submit your name in the drawing. A winner will be selected on each Friday of November, beginning November 6, 2009. This could be your winning notification! SUBMIT your name now and suggest your friends, relatives, or work mates do the same. 

 As many of you probably know, both my business and my passion is all about helping average hard-working tax payers qualify for these benefits and how to claim them.

Even if your tax refund isn’t as large as you’d like, it is a lump sum, one that can do so many wonderful things for you! Why not use it to make your life just a little bit easier?

1. Invest in Yourself

Maybe you’ve been wanting a new career, but haven’t had the money to get started. Training costs money. Perhaps you’re wanting to learn medical transcription and work from home some day soon. Bank this return and use it to fund your training.

2. Open a Car Account

If your car decides to call it quits, will you be forced back into the car payment merry go round? Tucking away each refund over the next 5-7 years could nearly pay for your next car.

3. Donate to Charity

Making a charitable contribution is always a smart way to spend your tax refund. By helping others in need you can do a great thing and lower your taxable income. 

4. Begin a Home Repair Fund

If you’re a home owner, you’ll eventually have to replace your roof. Why not save up now for the money you’ll need? Build up your fund by depositing $10 or so from each paycheck. Also tuck into this fund any miscellaneous cash gifts you receive.

5. Open a Vacation Fund

The trick here is to allow yourself only a set amount to spend each year on your vacation, always leaving the majority of the money in the bank. Aim for spending only one-fourth of it each year, or a set amount like $500. Keep funding it with your refunds each year.

6. Save for a rainy day

This one technically is not a way to spend your refund, but it is a good rule of thumb is to have at least 3 to 6 months worth of living expenses saved in case of emergency. You never know what will happen tomorrow, so you should always be prepared. 

7. Upgrade appliances 

By upgrading to energy efficient appliances such as air conditioners or refrigerators, you can actually save money on your energy costs, which is also tax deductible. Additionally, these improvements can also increase the value of your house. 

8. Use Your Refund to Pay Down Debt

Yes, you’ve heard this one before, over and over. A word of caution, though. If you constantly have credit card debt, it’s likely you’re still living beyond your means. What will keep you from spending more than you make after this year’s return has paid off your credit cards?

Why not split your refund? Pay off your higher-interest cards, learn to live within your means, and put some of the refund into an emergency account.

9. Set up an Expense Fund Just for Your Car

Let’s face it. We need to keep our vehicle running in order to go about the business of living. Remember the last time you had to quickly buy new tires? How did you pay for them? Cash? Credit card? How about replacing a broken headlight? Even small repairs can tap into money we don’t have set aside.

10. Hmmm… To Spend, or Not to Spend

Torn between saving your $1700 refund — or buying something wonderful? Calculate how many hours or weeks you’ll work to make that $1700 again. Remember, you’ll lose about 30% in taxes, etc. Would tucking it away help you feel more secure?

(How about a Bonus Tip?)

11. Expand Your Hobby into the Profit Zone

Do you have a hobby you love but haven’t had the money to turn it into a profitable venture? Set this refund aside to purchase supplies on sale so you’ll be ready to go.

Join the blog to post your ideas on what can be done with your tax refund! 

Looking to take advantage of the First-time Homebuyers Credit this year? We’ll if you haven’t found your perfect starter home yet, it’s time to get cracking.

The current First-time Homebuyers Credit is for homes purchased on or after Jan. 1, 2009, and before Dec. 1, 2009. (There is a different tax credit for homes bought in 2008.) So, in order to get this credit, you must close on your home by Nov. 30. Factor in that the closing of a home can take on average 30 to 45 days, and this means that the home needs to be under contract by mid-October.

Yes, it’s confusing, but because of the 2009 Economic Stimulus that was signed into law on Feb. 17, 2009, there are effectively ‘two’ first-time homebuyer credits, and both can impact your 2008 federal return.

First-Time Home Buyer Credit 2008
As part of the Housing and Economic Recovery Act of 2008, eligible first-time homebuyers can receive a refundable credit of up to $7,500.

The credit:

• Applies to home purchases made after April 8, 2008, and before January 1, 2009
• Is equal to the lower of 10% of the purchase price of the home or $7,500 for most taxpayers ($3,750 for married filing separate filers)
• Is phased out based on modified adjusted gross income (MAGI). For a married couple filing a joint return, the phaseout range is $150,000 to $170,000 of MAGI. For other taxpayers, the phaseout range is $75,000 to
  $95,000 of MAGI
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
• Is claimed on the 2008 return

Eligible taxpayers must not have owned a home at any time during the three years prior to the purchase. Eligible taxpayers claim the credit by filing IRS Form 5405 on their 2008 tax return. Form 5405, along with instructions on using the form to claim the first-time homebuyer credit, is available on the IRS website. If you may be eligible for the credit, you may wish to speak first to your tax professional for assistance in preparing your return.

For a home purchased in 2008, the credit must be repaid, making it more of an interest-free loan than an actual tax credit. The maximum repayment period is 15 years, but this period applies only if the property remains the taxpayer’s main home and is not sold, foreclosed on, or converted to business or rental property during that 15-year period.

If such changes take place, the buyer may have to repay the outstanding credit amount back to the government right away. Fortunately, the recapture of the credit in this situation cannot exceed the gain realized from the sale or other disposition.

Taxpayers who purchased their homes in 2008 must begin repaying it as an additional tax added to their returns beginning in 2010. The credit repayment amount is added to the taxpayer’s tax liability each year of the repayment period as an additional tax.

Taxpayers should consider the credit recapture amount when computing estimated income tax payments or withholding taxes to avoid underpayment penalties.

First-Time Home Buyer Credit 2009
There’s better news for first-time homebuyers in 2009!

For eligible first-time homebuyers who purchase a home on or after Jan. 1, 2009 and beforeDec. 1, 2009, the first-time homebuyer credit is increased from $7,500 to $8,000 and, and. . . this is BIG, . . .the individual no longer has to repay the credit unless the home owner sells or moves out of the home within 3 years of purchase.

As under prior law, the $8,000 credit begins to phase out for individuals with MAGI over $75,000 ($150,000 for married couples filing jointly). It is fully phased out for individuals with MAGI of $95,000 ($170,000 for joint filers).

Tax Year 2008 Return Filing
The IRS has modified the 2008 Form 5405 to incorporate the new law as it applies to individuals who purchased a home in 2009 and want to take the credit on their 2008 return. As of 2/24/09, the new Form 5405 is not able to be electronically filed. So, you can go ahead and postal mail your form and tax return, until the IRS has enabled the electronic filing of this form.

If you’ve already filed your 2008 tax return and qualify for a credit greater than $7,500, We recommends that you file an amended return (Form 1040X) to claim the additional credit, up to $500.

• If you haven’t yet filed your 2008 return, you may file a paper return now or wait to e-file your return until Form 5405 may be electronically filed.
• If you purchased your home in 2009, you may wish to wait until you file your 2009 return (in 2010) to claim the credit. Generally, it would be financially wisest to claim the credit on the 2008 return so that you can receive this credit as soon as possible.

The best advice is to always talk with your tax professional to determine a course of action that may be best for your individual financial situation.

Remember that our affliate company Innovative Real Estate Investing, LLC has several resources that may benefit those looking to buy, sell, or fix up their home.  Visit the website for more details: www.innovativerealinvest.com

I.R.E Repair Services was founded to help homeowners find reliable, high-quality home improvement contractors and home service professionals with the convenience of just a phone call or email. Everyone knows that finding reputable, quality contractors can be quite a difficult feat.  Our goal is to save the homeowner time and money, by having a network of pre-screened professionals in a large variety of home improvement specialties so the homeowner can complete their special project confidently and worry-free. 

OUR SERVICE

 We provide homeowners with a simple solution to the problems of finding pre-screened, licensed and insured home service professional, at NO CHARGE to the homeowner. Simply send us your list of home service needs and we will match you with one of our quality professionals.

Some jobs may be performed by qualified members of I.R.E Repair Service staff.  I.R.E Repair Service is a licensed general contractor.

We check all our network contractors and professionals for the appropriate requirements for their specialty:

1. Valid Licenses
2. Current bond and/or insurance
3. Excellent customer references

We are available throughout the project to make sure the homeowner is completely satisfied!

THE PROCESS

We match our network professionals with the requirements of each homeowner according to budget, project specification, scheduling, flexibility and craftmanship. The process is easy:

• 1. Homeowner submits project information to us by phone or web
• 2. We schedule an appointment with an appropriate contractor at the homeowner’s convenience
• 3. Contractor meets with the homeowner
• 4. Contractor submits bid or proposal to the homeowner
• 5. Homeowner selects the contractor who best meets their needs

 SUBMIT WORK ORDER

Call 1-888-818-7725 Ext. 6 or sempson@innovativerealinvest.com