Accounting | Robert L. Omer, CPA

Robert L. Omer is a certified public accountant with RLO & Company, a team of professionals with more than 56 years of combined tax, accounting and consulting experience. RLO & Company is a team of professionals with over 56 years of combined tax, accounting and consulting experience. RLO & Company and other professionals form this multi-disciplined practice that offers Tax, Accounting, Estate Planning, Controller Services, QuickBooks Training, Business Consulting and Strategic Business Planning services. Contact us at 412-279-8110 or www.rlocompany.com to arrange a one hour free consultation for all new clients.

Check with Your Accountant before Remodeling

The Energy Tax Incentives Act of 2005 unfortunately was not extended to 2008. We can only hope Congress will reevaluate this legislation in 2008! That’s the bad news. However, if you did make energy improvements to your home in 2007, you are still eligible for a tax credit on your 2007 taxes. The exception is solar-related upgrades which will continue to provide credits through 2008.

A tax credit is different than a deduction and can provide significant savings. A tax credit actually reduces the amount of income tax you have to pay, versus a deduction that reduces the amount of income subject to tax. The Energy Tax Incentives Act of 2005 offered a 10% tax credit with a lifetime cap of $500 for conventional technology home improvements. There are guidelines as to what products qualify for these credits. These energy-efficient improvements included adding insulation, replacement windows, exterior doors, water heaters, furnaces, central air conditioners and hot water boilers.

Two other areas where you can legally take tax deductions on home repairs and improvements are for medical and business purposes. These categories are very specific and there are tight guidelines that need to be followed in order to qualify.

Medical Deductions
If someone in your home becomes ill or disabled and you need to install a second-floor bathroom, ramps or put in a staircase to accommodate a wheelchair, you may be able to obtain a medical deduction for capital expenditures. However, if these improvements increase the value of the home, you can only deduct the cost minus the increased value. Any improvement or upgrade to a home has to be medically prescribed.

For example, a physician prescribes a special air filtration system to improve a child’s allergies. The complete system is installed for $7,000. With the upgrade to the air conditioning filtration system, the value of the house increases $1,500. The difference between the cost of the air conditioner and the increase in the home’s value is the medical expense ($5,500). As long as the medical condition persists, the home owner can continue to deduct the maintenance costs on the filtration system. When the improvement has increased the property value, the taxpayer is required to substantiate the increase in value using appraisals before and after the improvement.

Any additional costs incurred in the remodeling for aesthetic or personal reasons are not covered. For example, things such as built-in cabinetry, ornate handrails or decorative wainscoting would not be considered medically necessary and therefore not allowed as a medical expense.

Business Expenses
To qualify for a home office deduction, the taxpayer must use the space exclusively and regularly for business purposes. It cannot be a shared space used by the family or an office used on a temporary basis. If your employer provides office space but you are working out of your home office, this does not qualify for a deduction.

If you are considering remodeling your home for business reasons, make sure the renovations upgrade the functionality of your business and are exclusively used for business purposes. For instance, you have another employee, and you are working out of your garage and want to install a bathroom in the building. Or, you have a direct mail service and need to build additional storage space for materials; this could qualify for a deduction.

The most important thing to remember is never assume something is deductible until you first verify it with your tax accountant or the tax authorities. The rules for tax deductions keep changing and you don’t want to be caught spending a lot on remodeling with the expectation of deducting the money from your taxes. For most home improvements, the return on your investment won’t be in April, but will come when it’s time to sell your home.

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