Private residential home improvements are considered nondeductible personal expenses by the IRS – meaning your HVAC replacement isn’t tax deductible. However, new AC installation is considered a home improvement that increases your home’s basis. If you’re a homeowner, the term ‘basis’ refers to the value of your home for tax purposes. The starting point of your home’s basis begins with the amount you initially paid for purchase and becomes an adjusted basis overtime through valuable increases and reductions.
The most common way to increase your basis is through home improvements and additions that add to the amount your home is worth. Common home improvements include fences, a new AC system, additional bathrooms, driveways and swimming pools. Improvements that add to your home’s value and increase its basis can decrease the amount you are required to pay for certain taxes in the end.
Increasing the value of your home is also beneficial for selling purposes. When selling a home, a capital gains tax is placed on a partial amount you profit from the sale. The gain or loss from a sale is determined by subtracting its adjusted basis from the sales price that includes sale expenses. If the profit from your home is over a certain amount, your gain will not be tax exempt. Therefore, the higher your home’s basis, the less capital gains tax you’ll most likely have to pay.
Although you can’t receive an immediate tax deduction from home improvements like HVAC replacement, that doesn’t mean they aren’t beneficial for tax purposes. Capital improvements that add to your home’s value can give you a future tax break for selling purposes – as long as you track your improvement expenses.
Increase the value of your home today with new AC installation from Champion AC, where your comfort is our mission. We offer affordable HVAC replacement and AC installation financing for any home and all budgets. Call today to receive a free estimate or second opinion from a member of our experienced engineering team.
Ben is a retired Combat Controller with the United States Air Force. He started Champion AC in 2007. Ben is originally from the Mississippi Gulf Coast. He is happily married and an avid fan of the San Antonio Spurs and New Orleans Saints.