This is a commonly asked question and while the answer for “Are my HVAC repairs tax deductible?” is a straightforward no, an HVAC upgrade needs a bit more clarifying. We’ll explain what kind of improvements are considered tax deductible and at what point you can claim them.
First, we want to explain what is considered an HVAC repair versus an HVAC upgrade. The easiest way to think of it is this, if the work performed simply brings the unit or system back to its original state, then it is considered a repair. If the work done to the unit or system adds value, surpassing its original worth, then it is an improvement. Although, don’t feel as though you have to think about improvements in terms of resale value. Whether your motivation for an upgraded system is to benefit your family or the next – it’s an improvement nonetheless. That being said, keep detailed records and receipts of the work that has been performed even if you don’t intend to sell anytime soon. It has the potential to pay off in the future.
While you can’t deduct home improvements like installing a new HVAC unit the year it occurred, you can include these types of expenses to the cost basis of your home. The catch is that the HVAC upgrade and others like it need to be evident when you sell, so keep any records that prove you made a point to properly maintain the unit. If you’re now wondering what the cost basis of your home means, House Logic explains it as this:
“ Tax rules let you add capital improvement expenses to the cost basis of your home. Why is that a big deal? Because a higher cost basis lowers the total profit — capital gain, in IRS-speak — you’re required to pay taxes on. In other words, you might have a tax break coming.”
If selling your home is the plan, a new heating and air conditioning unit is not only an added selling point to potential buyers, but it is also considered a tax break. Feel free to contact us for more information about the HVAC systems we recommend. As for other types of home improvements and determining the cost basis of your home, here is an article from Turbo Tax that is helpful.