Tip of the Month
The IRS allows deductions on improvements made to your home but not for repairs. The reasoning is that the improvements increase the value of the home and repairs are a necessity and do not add to the value of your home or the property.
Improvements made to your home can also add dollars to your bottom line when you sell the house. Though there is a maximum. For a married couple, the IRS allows you to pocket up to $500,000 and for a single person, $250,000 tax exempt! Not bad.
Some of the areas where there might be a fine line of interpretation but are considered repairs and not tax deductible improvements, are: painting your house (inside or out), fixing your gutters, fixing floors, replacing broken windows, etc. The test is if it adds value to the basis of the property. While not fixing it may detract from the basis of the property, fixing it up won't add value to it.
Home improvements which are tax deductible, but might not be obvious at first, are putting in a new water heater, central heat or AC, wiring upgrades, and putting in a walkway.
More info can be found in "IRS publication 530 "Tax Information for First-Time Homeowners." (PDF)
Good News/Bad News Department
The bad news first. Congress has recently disallowed certain memberships from being deductible. These are for membership dues paid to country clubs and other types of business, athletic and social clubs. So no more schmoozing on the golf course as a business expense or, because of those conversations in the locker room, counting the fitness club as business territory.
The good news is that many membership deductions are still in force. Some of the organizations where membership dues are still deductible include professional organizations (such as bar associations and medical associations), civic or public service organizations (such as Kiwanis and Rotary) and business trade groups (such as chambers of commerce and trade associations). So, not to worry. Perhaps you were spending a little too much time out there on the golf course or eating a bit too much dessert at those city clubs anyway.
For those who love to read up on regulations, refer to IRS Pub 535, "Business Expenses" (PDF) and IRS Pub 529, "Miscellaneous Deductions" (PDF)
For the Gypsies In the Audience:
If you're thinking of buying a motor home to go out and "look for America," you may be able to arrange for tax deductible financing. The same goes for a boat if it's equipped with sleeping, cooking and toilet facilities.
Here are a couple of methods that might get your interest tax deductible. One method is, when applying for the RV or boat loan, use a home-equity loan for financing. In most cases, interest is deductible on home-equity loans of up to $100,000, regardless of what's purchased.
If your boat or motor home is equipped with sleeping, cooking and toilet facilities, your dream vehicle may qualify as a second home. This would put your purchase in the same category as a conventional vacation home. And, homeowners can deduct interest on up to a total of $1 million in debt used to buy or improve a principal residence or second home.
A final word. Your loan must be secured by the boat or RV you are purchasing. For details (lots of details), you can read up on these matters in IRS Pub 936, "Home Mortgage Interest Deduction" (PDF)
And if you run into them, say hi to Paul or Art for me.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.