Saturday, March 29, 2003

Home improvements might bring tax benefits to owner



By David Bradley
The Associated Press

Sure, the tax ramifications of most home-improvement projects aren't a lot to write home about.

Yet according to the Home Service Store, homeowners need to follow the same record-keeping used for taxes, and can even get some tax breaks depending upon how they finance the project or pay for certain materials.

Tonya Gammel of the Home Service Store says recent tax law changes have few tax ramifications for the average homeowners who improve their residences.

"What many homeowners don't know, however, is that there are some items added to a home that are exempt from sales taxes," says Gammel. When equipment such as heating and air-conditioning products are permanently added to the project, the items are considered additions to real property and may be exempt from local or state sales taxes.

Gammel is quick to point out, however, that this sales tax treatment for equipment varies state to state.

The Home Service Store oversees contractors who should have direct knowledge of which equipment qualifies for non-sales tax status.

This means record-keeping is all the more important for homeowners looking to take advantage of the few tax breaks that exist. Gammel recommends keeping all construction and material receipts. She also counsels homeowners to open a separate project checking account to capture all the costs in one place.

Gammel says this record-keeping might also come in handy to challenge tax assessments that over-inflate the amount the project adds to the fair market value of the home.

Homeowners should also consider financing their project with a tax deductible home-equity loan. These loans are based on the difference between the owners' mortgage balance and the current market value of the home. Recent drops in loan rates make home-equity loans very attractive home-improvement options.

Unlike other loans, portions of home-equity loans are tax deductible.

There are some instances where construction and labor costs do have direct tax benefits for the homeowners.

If the property in question is a rental property such as a duplex, most if not all the expenses are a direct deduction for the owner.




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