As tax season reaches its peak, those of us who are expecting tax refunds are beginning to dream about what we’ll spend them on. A new car? Paying down some debt? A vacation?
If you’re looking to benefit from your tax return now and make an investment in the future, home improvements are a great choice. Not only do they improve your house while you’re living in it, but, depending on the renovation, they may improve your home’s value and make it easier to sell down the line.
In this post, we’ll go over why home renovations are a great way to spend your tax return, including what home improvements add the most value for a resale!
Why Using Your Tax Return on Home Improvements is a Great Idea
If you receive money back in 2020, the options for what to do with it can be overwhelming. Putting it into savings or splurging on something you want are both valid choices, but what if you could have a taste of both options? By spending your tax return on home improvements, you can!
To be clear, most home improvements will not get you the same amount of money that you put into them. If you spend a couple of thousand dollars on new countertops, that may help your home sell more quickly and boost the asking price by about half of what you spent on the countertops, depending on current trends and other features of your home. So not only do you get to enjoy your new countertops, but they may earn you back some or all of your investment down the line.
If you plan on making certain kinds of renovations, such as energy-efficient home upgrades, or if you use part of your home as a home office or rental space, you may even be able to deduct some of the cost when you file your tax return next year. In fact, Nerd Wallet recommends home renovations as one of the smartest ways to spend your tax refund.
It’s important to note that home improvements themselves are not tax-deductible unless you rent your property or use it as an office. The tax benefits to home renovations for the average person come later down the line when you sell your home, as they increase your home’s basis price, which determines how much you’re taxed on when you sell. If you make $25,000 worth of improvements on a $200,000 house, your basis price increases to $225,000, which is subtracted from your sale price. If you sell at $500,000, you’re taxed on $275,000 instead of $300,000 because of your home improvements.
Even if your home renovation doesn’t bring you much of a financial boost in the future, the rewards of living in a home you’ve worked to build to your liking can’t be overstated. Paint touch-ups, new cabinetry, or a gorgeous new deck can totally transform the way you feel about your home, bringing you satisfaction and comfort you didn’t even know you were missing.
What Home Improvements Add the Most Value?
But if you’re angling for the greatest reward from your home upgrades, you have a few options to consider. Millennial homebuyers are looking for sustainability, low-maintenance features, and comfort and quiet with minimal “fixer-upper” requirements. Instead of building homes up to their specifications, they’re looking more for homes with those features already included. Spending your tax return on home improvements targeting that demographic may make your home more appealing to millennial buyers.
In 2020, many of the best home improvements to add value are outdoor projects. The sustainability improvements that millennial buyers like can mean living roofs or solar panels, which can not only appeal to new buyers and reduce your energy bill but can also be a hefty tax credit. For low-maintenance features, upgrading the garage door—which can recoup up to 117 percent of the job cost in the Pacific Northwest—adds years of functionality with little maintenance. And what better way to add comfort and quiet than a new wood deck, which can recoup 72 percent of the job cost across the United States?
Other popular renovations that can recoup much of their costs include:
|Project||Job Cost (National Average)||Resale Value (National Average)||Cost Recouped|
|Manufactured Stone Veneer||$9,357||$8.943||95.6%|
|Minor Kitchen Remodel – Midrange||$23,452||$18,206||77.6%|
|Siding Replacement – Fiber-Cement||$17,008||$13,195||77.6%|
|Siding Replacement – Vinyl||$14,359||$10,731||74.7%|
|Window Replacement – Vinyl||$17,641||$12,761||72.3%|
|Window Replacement – Wood||$21,495||$14,804||68.9%|
|Entry Door Replacement – Steel||$1,881||$1,294||68.8%|
|Deck Addition – Composite||$19.856||$13,257||66.8%|
|Roofing Replacement – Asphalt Shingles||$24,700||$16,287||65.9%|
|Bath Remodel – Midrange||$21,377||$13,688||64.0%|
If you’re expecting a big tax return and want to turn it into an outdoor space you can enjoy—one that can even boost your future sale price—Transblue can help! Our team of talented designers and contractors will transform any outdoor space into something truly beautiful. Contact the franchise nearest you to learn more about how we can design you the backyard of your dreams today!
Melissa Brinks is part of Transblue’s marketing team. She enjoys relaxing outside with her dog and an ice-cold can of Cran-Raspberry La Croix.