Exploring the Tax Advantages of Renovation
Renovating your home could mean spending tens or even hundreds of thousands of dollars to improve the property. Knowing what you can claim when it comes time to pay taxes will help put more money in your pocket.
The ability to claim tax advantages for renovations is largely determined by whether it’s your home, an investment property or a rental property.
Consider capital gains, tax exemptions, and other factors.
What are capital gains?
You should be aware that capital gains tax will apply to the sale of a property if it is ‘flipped’, renovated, and used for business purposes.
You’ll pay tax on the financial gains you make from the sale of your property.
When it comes to selling, however, all renovation costs will be subtracted from the capital gain.
As an example, if you purchased a property for $1,000,000 and spent $50,000 on renovations before selling it for $1.1,000,000, you have made $50,000 in profit. This $50,000 is subject to capital gains taxes.
Residence exemption
Lyndall Condon, from Mt Eliza Tax and Accounting, says that if you own a primary residence and sell it at a profit, you will receive a tax-free gain.
Condon says, “Because you own your home and it is your principal residence if that’s what it is.”
The tax benefit is that you don’t pay capital gains tax on any increase you generate by renovating.
Capital works deductions
Capital works deductions are one of the most common ways to get tax benefits when renovating rental or investment properties.
You can claim a tax deduction for the cost of construction or permanent structural changes to your property.
