I'm thinking of getting a HELOC loan to do home improvements. Where can I find out whether the home improvements I have in mind would qualify for the interest of the HELOC to be deductible? For example, I need to replace my 40 year old windows, need to install ceiling lights in living room, need new flooring in living room, need painting done, and need to upgrade laundry room with flooring and new washer/dryer. Would washer/dryer be considered home improvement or not? Painting? Windows, etc? Or are some of these non-home improvement. Replacing table, bookcases, sofa in living room would be non-home improvement, right?
See page 10 of Publication 936, which explains what a "substantial improvement" is for purposes of the mortgage interest deduction:
Substantial improvement. An improvement is substantial if it:
• Adds to the value of your home,
• Prolongs your home's useful life, or
• Adapts your home to new uses.
Repairs that maintain your home in good
condition, such as repainting your home, aren't
substantial improvements.
Purchasing appliances and furniture are not home improvements.
Firstly, you can only include improvements to real property. Real property is land plus any permanently attached structures (including landscaping). So furniture and appliances are right out from start.
Then, improvements add value or extend the useful life of the home or its sub-systems, while repairs keep the property in as-was condition. Repairs are the responsibility of every homeowner and there are no tax breaks, they don't add value or extend the useful life of the property. (However, if you remodel the kitchen or add an addition, the entire cost would be considered an improvement and you don't have to subtract the cost of painting that is part of the overall job.)
Windows and flooring would usually be seen as improvements that add value or extend the useful life of the home. Lights, maybe yes or no, depending. Built-in appliances may count if they are permanently attached to the home, but most appliances don't count, nor does furniture or painting for general freshening-up.
We have two enormous douglas firs that are diseased and will most likely fall and destroy the house if not removed. Does removing them count as extending the useful life of the house since if we do not the useful life of the house could end soon?
That is an interesting question. Landscaping that improves the property, such as planting bushes and trees, adding a patio or a sidewalk, and so forth, is a property improvement. I have never considered whether removing something would be considered an improvement. I don’t have enough knowledge to suggest one way or the other. If you decide to count the tree removal as a property improvement for purposes of the mortgage interest deduction, I would be sure to keep as much documentation as you can about the condition of the trees and how the removal created an improvement. Since most taxpayers are never audited, the odds are in your favor.