Renovating new home

[01tarashea]

We sold our home and bought a new home that needed renovation. What can I claim deductions on and how? I hired a contractor for a lot of it.. so do I use the bills from the contractor? What can and cannot be claimed as a deduction? We used cash from the sale of our previous home, so there were no loans to used for construction. Thank you

[LeonardS]

If your new home is your primary home the portion of your renovations that are capital improvements will be added to the basis of the home.  Renovations that are not capital improvements are considered normal repairs and maintenance and can not be deducted.

In general, a repair is something that you would do to maintain the home at a basic level.

A capital improvement is something that actually adds to the value of the home or increases its usefulness.  Some examples of capital improvements are:

• Remodels and room additions (including decks and porches)
• New or upgraded landscaping, irrigation, sprinkler system
• Hardscape such as pavement, block or retaining wall, patio
• Fencing
• Swimming pool, spa
• Storm windows, doors
• New roof
• Central vacuum or security system
• Upgraded wiring, plumbing, ductwork
• Central heating, AC, humidifier
• New furnace, water heater
• Filtration, soft-water, or septic system
• Built-in appliances
• New flooring or wall-to-wall carpeting
• Upgraded insulation
• Satellite dish

[01tarashea]

Thank you. Yes, I believe we are talking about capital improvements. So when I do my taxes, is there a section for this? And is this a tax deduction? 

We have added a bedroom, added a bathroom, upgraded the flooring, added ac/heat in new area. Upgraded wiring, added ridge vents to roof, etc. 

Therefore do I use the bills from the contractor to substantiate? Will everything need to be itemized? If so, I will need to get better receipts from the contractor.. as he has things written in lump sums. 

[DianeW777]

No.  Capital improvements are added to the cost basis of the home but are not deductible. This increases the cost of the home which will be needed at a time in the future when the home is sold. Keep an ongoing record of any and all capital improvement as long as you own your home and until it is sold.

The deductions allowed on your tax return will be mortgage interest and real estate taxes for itemized deductions for your personal home.  

[01tarashea]

Oh, thank you. That is disappointing. What about improvements that we made to the home we sold? For example, we re-painted and re-tiled the kitchen floor before we put it on the market. 

No deduction there either? 

Just helped with value? 

[DaveF1006]

These are still considered improvements that can be added the the cost basis of the home but still cannot be deducted as an expense. 

[Contented]

Please verify whether you are talking about a home that you used as your primary home.  If so, all the answers above are correct.  Also, did you live in it for at least 2 out of the last 5 years before selling it?  If it was an investment property, such as a rental, you can count the cost of your paint and cleaning supplies as part of the expense of renting it, which would reduce the rental income for 2021.    Did you do a 1031 exchange to use the old funds when you purchased the new home?   And will the new home be one you live in or one you plan to rent or flip?   Answers to these questions will help.

One more question.  If you did a 1031 exchange, how much less did the new home cost than the old home sold for?

[01tarashea]

Thank you. We sold our primary home to buy a new primary home. Neither home was or will be a rental or flip. We lived in the one we sold for 17 years. We are in Massachusetts, I do not think there will be capital gains, and there was no 1031 exchange. 
I was nervous to do my taxes myself this year since I have never had to deal with a purchase/sale of a home since I have been doing my taxes myself on Turbo Tax, which is why I am asking questions. But it seems as though my sale/purchase will not have much bearing on my taxes. 

[Contented]

Congratulations on your new home.  I suggest keeping the cost of improvements on your new home on record as adding to the cost of the home, just in case you sell it within two years or prices somehow go up higher than the allowed capital gains deduction in the future.