When it’s time to sit down and do your taxes, you may start wondering what you can do to reduce your tax bill. Deductions for home upgrades are things that you may be interested in learning more about. Let’s discuss in detail whether you can deduct plumbing expenses from your tax returns below.
Understanding Different Plumbing Expenses
The IRS classifies plumbing expenses into two different categories: maintenance and improvements. Plumbing maintenance is comprised of plumbing repairs, like fixing a leaky faucet, and annual inspections. Plumbing maintenance is not tax-deductible and doesn’t make you eligible for tax credits. Improvements are the plumbing upgrades that improve the value of your home, such as installing a tankless water heater or creating more uses for your plumbing system. These improvements do make you eligible for deductions and credits.
Exceptions for Repairs
There are a couple of exceptions where you can claim a part or all of your plumbing repair expenses on your tax returns. The first situation is if you operate out of a home office. You can deduct a set percentage of your plumbing repairs.
The second situation is if you opt for renting out some of your home or another home. You can typically deduct part or all of your plumbing repairs on your tax returns for these areas.
Energy-Efficient Home Improvement Tax Credit
As part of the Inflation Reduction Act of 2022, homeowners who make energy-efficient home improvements can claim up to a tax credit maximum of $3,200. The total amount of the tax credit will typically be equal to 30% of the combined cost of the new appliance and its installation labor.
An example of a plumbing upgrade that would qualify for this program is a tankless water heater. You can discover which ENERGY STAR-certified plumbing appliances are eligible for this tax credit by visiting the ENERGY STAR’s website. To receive this tax credit, you’ll need to submit Form 5695 for Residential Energy Credits.
It’s vital to note that this is only a tax credit. The amount of federal income tax that you owe will be reduced by the amount of the tax credit that your new plumbing upgrade makes you eligible to receive. You will not get a refund if the amount of taxes you owe is less than the tax credit that you’re eligible for.
Upgrades for Medical Reasons
The federal government does allow homeowners to deduct some of the costs associated with plumbing upgrades when they’re deemed necessary to accommodate a medical condition. For example, you may need to install a low curb walk-in shower or handrails for a disabled family member. It’s crucial to note that these deductions are a bit more complex in what you can claim based on your adjusted gross income level. It’s best to seek assistance from a tax professional to determine what plumbing upgrades you can deduct and the allowable amount you can deduct on your federal tax returns.
Clean Energy Upgrades
Another tax credit offered by the federal government is the Residential Clean Energy Credit. This credit is for those who invest in renewable energy products for their home. An example of a plumbing upgrade that would qualify for this tax credit is a solar water heater. Because solar energy is a renewable source, pairing it with a water heater can allow you to take advantage of cleaner energy usage while saving money on a new water heater.
Federal Historic Rehabilitation Tax Credit
If you live in a home that’s deemed to be historic, there’s no surprise that upgrading can be quite costly, to say the least. Fortunately, when it comes to a lot of plumbing updates, you’ll likely find that they make you eligible for this tax credit. For example, upgrading old piping to prevent water damage and bringing your historic home up to current code standards can create eligibility for this tax credit.
Capital Gains Improvements
Capital gains are taxes that you owe on the sale of your home. If you plan on selling your home in the future, you may want to opt out of some of the other tax credits that we discussed above. Instead, you may want to opt for adding the improvement amount from your plumbing upgrades to the adjusted cost basis to reduce the amount of capital gains tax that you owe. Homeowners can either use their plumbing upgrades in the form of capital gains improvements or tax credits, not both.
Expert Plumbing Installation Service
Talk to a tax expert to understand the potential benefits and trade-offs of various home improvements. For the work itself, Linn Benton Plumbing offers expert plumbing repair and installation services to the Albany, OR community. We can also help with all your plumbing repair, replacement, and inspection needs. Simply call our office today to book your next service appointment with one of our friendly plumbers.
