Tax Return Issues That Can Cause Delays or Denials When Buying a Home

Deducting House Renovation Cost From Income Tax Filing Returns

The average consumer is largely aware that while Income Tax Filing, some benefits are given to those who are repaying a home loan. A deduction is allowed for the principal amount of the loan and the interest paid. What most people are not aware of is the benefit they get for home improvement or house renovation. In this article, we first tackle them and then move on to the benefits given for building repair and renovations.

Home Renovation Tax Benefits

If the owners occupy the home and they have taken a home loan for improvements, they can claim deductions on the interest. Under the IT Act of 1961, any interest paid towards a home renovation annually is deductible while filing tax returns. The interest amount is capped at Rs. 30,000 in a year if the home is self-occupied. In case the house is rented, then the entire interest amount is allowed as deduction.

The only condition for claiming the benefit is if a loss occurs under the head of house property. Then the Finance Act of 2017 says that the amount is restricted to 2,00,000 rupees. Any balance amount is carried forward.

Image That Depicts The Renovating your Home Save Tax Concept.

Further Elements Of House Renovation Tax Liability

• For a self-occupied home, if the repairs done are not standard and considered as capital expenditure, then the renovation expense is seen as ‘cost of improvement’ of the property. Such repairs and expenses help lower the taxable capital gains in case the self-occupied property is sold in the future.

• Experts advise that all invoices and bills that are related to the renovation cost should be kept as proof to claim tax benefit.

• Under Budget 2017, the eligibility for benefit for house property was reduced from three to two years. It means if you owned the home for more than two years, you get long-term capital gains benefit.

• The cost of renovations is adjusted, i.e., the price of inflation is added to the original expense to help decrease tax liability. The tax authorities notify the cost inflation index.

Tax Liability And Benefit In Business Buildings or Properties

Renovation, reconstruction, and restoration to a business property are tax-deductible to some extent. So, when business owners are considering making improvements to their buildings, they save some money. This is common knowledge. It is the rehabilitation tax credit of some countries that few are aware of. Depending on the kind of rehabilitation planned, some businesses get more tax advantage than usual. Here – Check Out the taxes applicable on commercial buildings.

Tax Liability And Benefit In Business Buildings or Properties

• A tax deduction is only the first way to save finances when renovating. Rehabilitation costs come under tax credit, which offers more savings.

• To be eligible for a tax credit, there are stringent guidelines that a business has to follow. To qualify for rehabilitation expenses, the criteria to fulfil are:

o Both Interior and Exterior work
o Add construction-related costs and fees, including:

  • engineering fees
  • architectural fees
  • site survey fees
  • legal expenses
  • development fees

• Rehabilitation cost is not inclusive of enlargement of buildings or construction of new ones for the business. Even the acquisition of buildings next door to combine to current structures is not included. While furniture expenses are not under tax credit, they do give regular tax deductions. Constructing a parking lot or a sidewalk or getting landscaping, do not come within the purview of a tax credit, but tax deduction. Rehabilitation tax credit includes only renovation, reconstruction, and restoration.

• The cost percentage you can claim as credit is 20% for any historic building or structure and 10% for any building that came in service prior to 1936.

Do note that tax credit is not provided everywhere in the world, but the tax deduction is offered in some form or the other by all countries. Before setting out for any major renovations, it is always advised to consult income tax filing experts to get an idea of what can be claimed and what not.

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