Three Things You Should Know About Financing Your Home Improvements
THE IMPROVEMENTS MUST BE "SUBSTANTIAL."
To deduct the interest on the mortgage as acquisition indebtedness, the IRS requires the project to be a "Substantial Improvement" that:
- Adds to the value of the home;
- Prolongs the home’s useful life; or,
- Adapts the home to new uses.
For example, painting a room may not qualify, but an addition or a new kitchen may qualify.
YOU HAVE A 24-MONTH LOOK-BACK PERIOD.
If you are pulling cash out to reimburse yourself for improvements already made, those improvements must have occurred within the past 24 months to qualify for the acquisition indebtedness deduction.
YOU ONLY HAVE 90 DAYS AFTER WORK WAS COMPLETED.
You must take out the mortgage or home improvement loan within 90 days after the work is completed to qualify for the tax deduction. The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage.
PLEASE NOTE: THIS OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE ABOUT YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.
Taxpayers who itemize may only deduct interest on up to $750,000 total of qualified residence loans.
Source: Momentifi