Tax season can be pretty confusing. However, knowing which expenditures can be qualified as tax-deductible will save you a great deal of money!
The government does not usually allow you to deduct costs associated with repairs and improvements because you are investing in your private residence. However, there are some key exceptions. If you maintain your home well, you can avoid more expensive repair bills down the road. Additionally, improvements tend to increase the value of your home and allow you to build equity. One question that often occurs when homeowners consider floodproofing and other improvements is whether they are tax-deductible.
In fact, they are! Here is what you need to know.
Living in a flood-prone area
If you live in a federally designated flood zone, certain floodproofing expenses might be tax-deductible. Here are some examples of floodproofing expenses that could potentially qualify for deductions:
- Elevation of Structures: If you elevate your home or certain structures on your property to reduce the risk of flood damage, the expenses related to this elevation could be deductible.
- Flood Barriers or Gates: Costs associated with purchasing and installing flood barriers, gates, or other structural measures to prevent floodwaters from entering your home may be deductible.
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- Sealing or Waterproofing: Expenses incurred for sealing walls, waterproofing foundations, or installing sump pumps to prevent water intrusion during floods might also qualify for deductions.
- Reinforcing Foundations: Reinforcing the foundation of your home to make it more resistant to flood damage could be considered a deductible expense.
- Relocation of Utilities: If you relocate utilities such as HVAC systems, electrical panels, or water heaters to higher levels to protect them from flood damage, the associated costs may be deductible.
- Professional Fees: Fees paid to engineers, architects, or contractors for designing and implementing floodproofing measures might also be eligible for deductions.
Remember, the deductibility of these expenses can depend on various factors, including specific tax laws, the nature of the improvements, and whether they meet the IRS's criteria for deductible flood mitigation expenses. It's essential to keep thorough documentation and consult with a tax professional to determine eligibility and maximize potential deductions.
Home office floodproofing
Do you work from home or have a small business based on your property?
If so, a portion of the money you spend on repairs and improvements to your home, including floodproofing, can be tax-deductible. To request the deduction, you should file a Schedule C for your business and claim the home office deduction.
You can deduct up to 100% of the costs of floodproofing your home office. Keep in mind that you can deduct a percentage equal to the percentage of your home that is used for your office.
Suppose you use 10% of your house`s living space for a home office and spend $1000 on floodproofing. It means that you can easily return $100 as tax-deductible home improvements.
Floodproofing for medical reasons
Home improvement that is made to make the house safe for you or any family member due to their medical condition is also a tax-deductible matter.
Water damage is extremely dangerous for people who have respiratory diseases, skin conditions, allergies, etc. That is why floodproofing can also be justified as a tax-deductible home improvement.
To be eligible, you must meet certain requirements, and provide evidence of your total medical costs for the year—including the costs of the improvements to your home. these costs should exceed 7.5% of your gross income.
How to claim tax deductions for floodproofing
To claim tax deductions for floodproofing expenses, you'll typically need to provide specific documents to support your deduction. Here's a list of documents you may need:
- Receipts and Invoices: Keep receipts and invoices for all expenses related to floodproofing, including materials purchased, labor costs, and any professional services hired for the work.
- Contract Agreements: If you hired contractors or professionals to perform floodproofing work, retain copies of the contract agreements outlining the scope of work, cost estimates, and payment terms.
- Proof of Payment: Provide evidence of payment for the floodproofing expenses, such as bank statements, credit card statements, or canceled checks.
- Before and After Documentation: Take photographs or videos of the property before and after the floodproofing improvements to demonstrate the changes made and their effectiveness in mitigating flood risk.
- Building Permits: If applicable, retain copies of any building permits obtained for the floodproofing work. Some jurisdictions may require permits for certain types of flood mitigation measures.
- Engineering Reports: If you conducted engineering studies or assessments as part of the floodproofing process, keep copies of the reports and findings to support the necessity of the improvements.
- Insurance Documents: Provide copies of your flood insurance policy and any correspondence with your insurance provider regarding flood-related claims or coverage.
- Home Office Documentation (if applicable): If you're claiming deductions for floodproofing expenses related to a home office, maintain records documenting the portion of your home used for business purposes, such as floor plans or measurements.
- IRS Forms: When claiming deductions on your tax return, you may need to fill out specific IRS forms related to home improvements or business expenses, depending on the nature of the floodproofing expenses.
It's essential to keep these documents organized and readily available in case of an IRS audit or if you need to provide evidence to support your deduction claim. Additionally, consulting with a tax professional can help ensure you have all the necessary documentation and understand the requirements for claiming tax deductions for floodproofing expenses.
Want to know more about floodproofing your home and business, boosting the value of your property, and preventing water damage? Contact Dam Easy today, and we will answer all your questions, help you make informed decisions about floodproofing, and save a great deal of time, money, and effort, making your home safe in the face of the most severe flood season.
Get your flood barriers before another disaster strikes and enjoy the peace of mind knowing that the most severe flooding has nothing on you and your property from now on.
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