What home improvements are tax deductible?
In general, for a home you live in, there's maintenance, which is just that, you pay to keep your house in good repair.  There's also real improvements. I spend $xxx to turn my poured cement basement into living space. Here, I keep my receipts and the cost (although not my labor) is added to the basis of my home when I sell.  The couple things that may offer a deduction have to do with energy. When I insulated my basement, there was a state tax credit which I got back when I filed taxes. There are also credits for installing solar panels.  What you've described in your question just sounds like one of the small joys of home ownership. On a personal income tax return home improvements are generally not deductible on a federal level.  There might be some exceptions made for special tax programs, such as solar panels, but they tend to be the exception rather than the rule. As noted above but with sources An improvement materially adds to the value   of your home, considerably prolongs its useful   life, or adapts it to new uses. You must add the   cost of any improvements to the basis of your   home. You cannot deduct these costs. Source Page 11, Adjusted Basis, Improvements Second, A repair   keeps your home in an ordinary, efficient operating   condition. It does not add to the value of   your home or prolong its life. Repairs include repainting   your home inside or outside, fixing your   gutters or floors, fixing leaks or plastering, and   replacing broken window panes. You cannot   deduct repair costs and generally cannot add   them to the basis of your home. Source Page 12, Adjusted Basis, Repairs versus improvements Generally, an expense for repairing or maintaining   your rental property may be deducted if you   are not required to capitalize the expense.  You must capitalize any expense   you pay to improve your rental property.   An expense is for an improvement if it results in   a betterment to your property, restores your   property, or adapts your property to a new or   different use. Source Page 5, Repairs and Improvements  Good Luck, "Home Improvements that improve the home's Energy Efficiency are currently eligible for federal tax credits. This includes renewable energy equipment (solar panels, etc.) and Nonbusiness Energy Property Tax Credit. The credit is 30% of the cost. From Intuit Turbo Tax: Energy Tax Credit: Equipment and materials can qualify for the Nonbusiness Energy   Property Credit only if they meet technical efficiency standards set   by the Department of Energy. The manufacturer can tell you whether a   particular item meets those standards. For this credit, the IRS   distinguishes between two kinds of upgrades. The first is ""qualified energy efficiency improvements,"" and it   includes the following:   •Home insulation   •Exterior doors   •Exterior windows and skylights   •Certain roofing materials The second category is ""residential energy property costs."" It   includes:   •Electric heat pumps   •Electric heat pump water heaters   •Central air conditioning systems   •Natural gas, propane or oil waterheaters   •Stoves that use biomass fuel   •Natural gas, propane or oil furnaces   •Natural gas, propane or oil hot water boilers   •Advanced circulating fans for natural gas, propane or oil furnaces"
I contacted Stephen Fishman, J.D., the author of Home Business Tax Deductions, to let him know that this question was missing from his book. He was kind enough to send a reply. My original phrasing of the question: If your car is used for both business and personal use, and you deduct via the actual expense method, do trips to the mechanic, gas station, and auto parts store to service or repair the car count as business miles, personal miles, or part-business-part-personal miles? What about driving the newly-purchased car home from the dealership? And his response: Good question. I can find nothing about this in IRS publication or elsewhere. However, common sense would tell us that the cost of driving to make car repairs should be deductible. If you use your car for business, it is a business expense, just like transporting any other piece of business equipment for repairs is a business expense. This should be so whether you use the standard mileage rate or actual expense method. You should probably reduce the amount of your deduction by the percentage of personal use of the car during the year. The same goes for driving a car home from the dealer. "Yep. You're single, you're possibly still a dependent on your parent's taxes (in lieu of rent), and you're finally bringing home bacon instead of bacon bits. Welcome to the working world. Let's say your gross salary is the U.S. median of $50,000. With bi-weekly checks (26 a year; common practice) you're getting $1923.08 per paycheck. In the 2013 ""Percentage Method"" tax tables, here's how your federal withholding is calculated as a single person paid biweekly: Federal taxes are computed piecewise; the amount up to A is taxed at X%, then the amount between A and B is taxed at Y%, so if you make $C, between A and B, the tax is (A*X) + (C-A)*Y. The amount A*X is included in the ""base amount"" for ease of calculation. Back to our example; let's say you're getting $1923.08 gross wages per check. That puts you in the 25% marginal bracket. You pay the sum of all lesser brackets (which is the ""base amount"" of the 25% bracket), plus the 25% marginal rate on every dollar that falls within the bracket. That's 191.95 + (1923.08 - 1479) * .25 = 191.95 + (444.08 * .25) = 191.95 + 111.02 = $302.97 per paycheck. The ""effective"" tax rate on the total amount, as if you were being charged a flat tax, is 15.75%, and this is just for the federal income tax. Add to this MA state income taxes (5.25% flat tax), FICA (aka Medicare; 1.45% flat) and SECA (aka Social Security; 6.2% up to a ""wage base"" that $50k doesn't even approach), and your effective tax rate on each dollar you earn is 15.75% + 5.25% + 1.45% + 6.2% = 28.65%. This doesn't include any state unemployment taxes that may be withheld separately, but as the rate I come up with is pretty darn close to what you've figured (meaning I slightly overestimated your gross income and thus your effective tax rate), my bet is that SUTA's either employer-paid in MA, or it's just part of MA state income tax. It gets better, at least at the federal level: The amount of your state income taxes is tax-deductible at the federal level if you itemize your deductions. That may not be a factor for you as you'd have to come up with more than $6,100 of other tax-deductible expenses to make itemizing the better option than taking the standard deduction (big-ticket items are mortgage expenses other than principal payments, hospital stays such as for childbirth or major accident, and state and local taxes such as sales, property and income). If you can claim yourself as a dependent (meaning your parents can't), then $150 of each check ($3,900 of your annual salary) is no longer taxed for federal withholding, lowering the amount of money taxed at the 25% marginal rate. You effectively save $37.50 biweekly ($975 annually) in taxes. Get married and file jointly, and your spouse, her personal exemption, and an extra standard deduction amount (if you don't itemize) go on your taxes. The tax rates for married couples filing jointly are also lower; they're currently calculated (or were in 2012) to be the same as if two equal earners were to file separately, so if your spouse doesn't work, your taxes on the single income are calculated at the rates you'd get if you earned half as much. It doesn't work out to half the taxes, but it is a significant ""marriage advantage"". Have kids, and each one is another little $3,900 tax write-off. It's nowhere near the cost of having or raising the child, but it helps, and having kids isn't about the money. Owning a home, making charitable deductions, having medical expenses, etc are a toss-up. The magic number in 2013 is $12,200 for a married couple, $6,100 for a single person. If your mortgage interest, insurance premiums, property taxes, medical expenditures, charitable donations, any contributions from your take-home pay to a tax-deferred savings account (typically these accounts are paid into by your employer as a ""pre-tax deduction"" and never show up as taxable income, but you could just as easily move money from your take-home pay into tax-deferred savings) and any other tax-deductible payments add up to more than 12 large, then itemize. If not, take your standard deduction. As a single taxpayer just starting out in life, you probably don't have any of these types of expenditures, certainly not enough to give up the SD. I did the math on my own taxes in 2012, and was surprised at how little the government actually gets of my paycheck when all's said and done. Remember back in the summer of 2012 when everyone was mad at Romney for making millions and only paying an effective income tax rate of 14%, which was compared to the middle class's marginal rate of 25-28%? Well, my family of 3, living on a little more than the median income from one earner (me), taking the married standard deduction, three personal exemptions, and a little extra for student loan interest, paid an effective federal income tax rate of something like 3.5%. Of course, the FICA and SS taxes don't allow any deductions (not even for retirement savings), so add in the 4.2% SS (in 2012) and 1.45% FICA and the full federal gimme was more like 9-10%." Unfortunately, the tax system in the U.S. is probably more complicated than it looks to you right now. First, you need to understand that there will be taxes withheld from your paycheck, but the amount that they withhold is simply a guess.  You might pay too much or too little tax during the year.  After the year is over, you'll send in a tax return form that calculates the correct tax amount.  If you have paid too little over the year, you'll have to send in the rest, but if you've paid too much, you'll get a refund.  There are complicated formulas on how much tax the employer withholds from your paycheck, but in general, if you don't have extra income elsewhere that you need to pay tax on, you'll probably be close to breaking even at tax time. When you get your paycheck, the first thing that will be taken off is FICA, also called Social Security, Medicare, or the Payroll tax.  This is a fixed 7.65% that is taken off the gross salary.  It is not refundable and is not affected by any allowances or deductions, and does not come in to play at all on your tax return form. There are optional employee benefits that you might need to pay a portion of if you are going to take advantage of them, such as health insurance or retirement savings.  Some of these deductions are paid with before-tax money, and some are paid with after tax money. The employer will calculate how much money they are supposed to withhold for federal and state taxes (yes, California has an income tax), and the rest is yours. At tax time, the employer will give you a form W-2, which shows you the amount of your gross income after all the before-tax deductions are taken out (which is what you use to calculate your tax).  The form also shows you how much tax you have paid during the year. Form 1040 is the tax return that you use to calculate your correct tax for the year.  You start with the gross income amount from the W-2, and the first thing you do is add in any income that you didn't get a W-2 for (such as interest or investment income) and subtract any deductions that you might have that are not taxable, but were not paid through your paycheck (such as moving expenses, student loan interest, tuition, etc.)  The result is called your adjusted gross income. Next, you take off the deductions not covered in the above section (property tax, home mortgage interest, charitable giving, etc.).  You can either take the standard deduction ($6,300 if you are single), or if you have more deductions in this category than that, you can itemize your deductions and declare the correct amount. After that, you subtract more for exemptions.  You can claim yourself as an exemption unless you are considered a dependent of someone else and they are claiming you as a dependent.  If you claim yourself, you take off another $4,000 from your income. What you are left with is your taxable income for the year.  This is the amount you would use to calculate your tax based on the bracket table you found. California has an income tax, and just like the federal tax, some state taxes will be deducted from your paycheck, and you'll need to fill out a state tax return form after the year is over to calculate the correct state tax and either request a refund or pay the remainder of the tax.  I don't have any experience with the California income tax, but there are details on the rates on this page from the State of California. "I'm not a tax professional, but as I understand it, you are not expected to commute from San Francisco to Boston.  :) If your employer has not provided you with an external office, then yes, you have very likely met the ""convenience of the employer"" test. However, to take the home office deduction, there are many requirements that have to be met. You can read more at the Nolo article Can You Deduct Your Home Office When You're an Employee? (Thanks, keshlam) The home office deduction has many nuances and is enough of an IRS red flag that you would be well-advised to talk to an accountant about it.  You need to be able to show that it is exclusively and necessarily used for your job. Another thing to remember: as an employee, the home office deduction, if you take it, will be deducted on Schedule A, line 21 (unreimbursed employee expenses), among other Miscellaneous Deductions.  Deductions in this section need to exceed 2% of your adjusted gross income before you can start to deduct.  So it will not be worth it to pursue the deduction if your income is too high, or your housing expenses are too low, or your office is too small compared to the rest of your house, or you don't itemize deductions." The eligibilty of the deduction is based on what the borrowed money is used to purchase and NOT what asset is used as collateral.  So at the beginning of your mortgage, 10% of the interest is deductible because the entire loan was used to purchase the condo.  But when you withdraw money from the account the additional interest is usually not deductible.  It can get confusing with all the withdrawals and payments that will be coming in and out of the account if you happen to use it a lot like a chequing account. An easy example would be if you only paid the interest on the loan...  Say you had a $100 000 loan at 5% APY (for simplicity's sake).  After one year, you would have paid $5000 interest.  $500 of the would be deductible given that your office is 10% of the condo.  Then you buy a $1000 couch and continue to only pay interest for the next year.  You would have paid $5100 interest...  $5000 on money borrowed to buy the condo, and $100 on money borrowed to buy the couch.  So you can still only deduct $500. What happens when you pay back $500 against the line of credit?  Could you designate that 100% of the money should be applied to the non-deductible interest?  Or does it have to applied proportionally?  I don't know. I think it'd would be wise to separate the loans somehow.  Manulife may even have some tools to facilitate that.  However, I wouldn't recommend the Manulife One product.  I looked into when I was buying my house two years ago, and at that time it was too expensive.  The rate was the same that other banks were charging for a home equity line of credit (which was prime at the time).  You can replicate the Manulife One in a cheaper way using a traditional mortgage and a home equity line of credit...  The majority of the loan will be the traditional mortgage at (hopefully) a cheap rate.  Then you can use your line of credit as the chequing account. "If I have a house that its market value went from $100k to $140k can I get HELOC $40K? Maybe - the amount that you can borrow depends on the market value of the house, so if you already have $100k borrowed against it, it will be tough to borrow another $40k without paying a higher interest rate, since there is a real risk that the value will decrease and you will be underwater.   Can I again ask for HELOC after I finish the renovation in order to do more renovation and maybe try to end up renovating the house so its value raises up to $500k? I doubt you can just ""renovate"" a house and increase its market value from $140k to $500K.  Much of a house's value is determined by its location, and you can quickly outgrow a neighborhood.  If you put $360k in improvements in a neighborhood where other homes are selling for $140k you will not realize nearly that amount in actual market value.  People that buy $500k houses generally want to be in an area where other homes are worth around the same amount.   If you want to to a major renovation (such as an addition) I would instead shop around for a Home Improvement Loan.  The main difference is that you can use the expected value of the house after improvements to determine the loan balance, instead of using the current value. Once the renovations are complete, you roll it and the existing mortgage into a new mortgage, which will likely be cheaper than a mortgage + HELOC. The problem is that the cost of the improvements is generally more than the increase in market value.  It also helps you make a wise decision, versus taking out a $40k HELOC and spending it all on renovations, only to find out that the increase in market value is only $10k and you're now underwater. So in your case, talk to a contractor to plan out what you want to do, which will tell you how much it will cost.  Then talk to a realtor to determine what the market value with those improvements will be, which will tell you how much you can borrow.  It's highly likely that you will need to pay some out-of-pocket to make up the difference, but it depends on what the improvements are and what comparable homes sell for." Thinking of personal residence as investment is how we got the bubble and crash in housing prices, and the Great Recession. There is no guarantee that a house will appreciate, or even retain value. It's also an extremely illiquid item; selling it, especially if you're seeking a profit, can take a year or more. ' Housing is not guaranteed to appreciate constantly, or at all. Tastes change and renovations rarely pay for themselves. Things wear out and have costs. Neighborhoods change in popularity. Without rental income and the ability to write off some of the costs as business expense, it isn't clear the tax advantage closes that gap, especislly as the advantage is limited to the taxes upon your mortgage interest (by deducting that from AGI).  If this is the flavor of speculation you want to engage in, fine, but I've seen people screw themselves over this way and wind up forced to sell a house for a loss. By all means hope your home will be profitable, count it as part of your net wealth... but generally Lynch is wrong here, or at best oversimplified. A house can be an investment (or perhaps more accurately a business), or your home, but -- unless you're renting out the other half of a duplex,which splits the difference -- trying to treat it as both is dangerous accounting. An issue with the initial plan was that the house was gifted to you. Therefore you owned it. Now two years later you wanted to get a mortgage. The IRS would look at it as a home equity debt not a home Acquisition debt, and the interest on the first $100,000 of home equity dept is deductible. This is from IRS pub 936 Mortgage treated as used to buy, build, or improve home.   A mortgage   secured by a qualified home may be treated as home acquisition debt,   even if you do not actually use the proceeds to buy, build, or   substantially improve the home. This applies in the following   situations. You buy your home within 90 days before or after the date you take out the mortgage. The home acquisition debt is limited to the home's   cost, plus the cost of any substantial improvements within the limit   described below in (2) or (3). (See Example 1 later.) You build or improve your home and take out the mortgage before the work is completed. The home acquisition debt is limited to the   amount of the expenses incurred within 24 months before the date of   the mortgage. You build or improve your home and take out the mortgage within 90 days after the work is completed. 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. (See Example 2 later.) Example 1. You bought your main home on June 3 for $175,000. You paid for the   home with cash you got from the sale of your old home. On July 15, you   took out a mortgage of $150,000 secured by your main home. You used   the $150,000 to invest in stocks. You can treat the mortgage as taken   out to buy your home because you bought the home within 90 days before   you took out the mortgage. The entire mortgage qualifies as home   acquisition debt because it was not more than the home's cost. At two years you would be way outside the 90 day limit. The pub also gives example on how calculate the amount of interest you can deduct.