I was reading about residential property energy incentives from the IRS and noticed that certain new roofs qualify for tax credits in 2021. If you’re planning a roof replacement and want to help reduce the cost, you should check; does your roof qualify?
Suppose you are replacing a new reflective roof to your full-time residence and the roofing material is ENERGY STAR certified with the right kind of pigmented coating. In that case, you can gain up to 10 percent of the material costs or $500 for the material costs. It only applies to reflective roofs, and coatings are not eligible. The tax credit does not include the costs of installation.
The first steps are to determine if roof materials you plan to use for your replacement are eligible for the tax credit. After that, it’s important to know how to apply for the credit. Read on to learn the answers to these questions and more.
Does a New Roof Qualify for Tax Credit?
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The first requirement for the tax credit is that the roof you are replacing is at your principal residence. This means that it is the house you normally live in and not a second home or vacation property. It must also be an existing property that you own and not a new home or rental property.
Second, the materials you are using have to meet ENERGY STAR requirements. It must be made from either metal or asphalt and contain the right kind of pigmented coatings or cooling granules. The pigment or cooling granules should be ones designed for heat reduction.
Third, the claim has to come for roofs before December 31, 2021, when the tax credit is due to expire. Previously it had been set to end on December 31, 2020, but it was thankfully extended.
Finally, the tax credit only replies for reflective roof materials as described further above. If you are applying special coatings to your existing roof, then it does not qualify for this particular tax credit.
How Much Can I Receive for the Metal Roof Tax Credit?
Should you meet all the requirements listed above, you can receive up to 10 percent of your material costs or $500, whichever is lower. You must note that it only includes 10 percent of the material costs and not the labor, installation, or other costs involved.
You should check in advance to see if your chosen roof materials and your roof replacement job qualifies for the tax credit.
How Do I Apply for the Metal Roof Tax Credit?
You can apply for the tax credit in three simple steps:
- Step 1: Check that you meet all the requirements to qualify for the tax credit. As for the status of your house as a new build or existing and whether or not it’s your primary residence, you should probably know this yourself. To see if the materials you are planning to use from your roofing supply company qualify you for the tax credit, it’s best to ask right at the source. Any reputable building company should be able to tell you exactly which colors and styles contain the right pigments or cooling granules that you need to qualify.
- Step 2: Ask your supplier for a copy of the Manufacturer’s Certification letter. This is a document that certifies the product you are going to use is certified by ENERGY STAR. It will comment on the pigment and design. You’ll need this in your records.
- Step 3: This is the slightly harder part because it involves a form from the IRS. Specifically, you need to fill out IRS Form 5695 “Residential Energy Credits” and file it with your tax return or send it to your accountant to file with your next tax return.
If you just filed a return and can’t wait another year to do it, then you can either yourself or via your accountant file a revised tax return.
What Home Improvements Are Tax-Deductible 2021?
There are quite a number of tax-deductible home improvements in 2021. First, we must be clear on the distinction between home repairs and home improvements because the former is not tax-deductible, whereas the latter is.
Home repairs, according to the IRS, refers to modification work done to restore a home to its original state and value. Home repairs may only be tax-deductible when they apply to certain home offices and rental properties owned by the claimant.
Home improvements are modifications that you can do to increase the value of the property. A new roof is an example of such a modification, as would be a new driveway, new attic insulation, a new septic tank, and more. Not all improvements are eligible for tax credits, and some you can only apply for when you sell your house. You should check on these requirements with your accountant or the IRS website.
The following are all home improvements that do qualify for tax credits in 2021. We will indicate whether the saving comes as a deduction or as a tax credit, and when you can apply for it:
1. Medical-related Improvements (Deduction)
This is a deduction for which you can apply in the same year that you have them installed. They include additions or medical equipment added to the property for yourself, your spouse, or another dependent.
Examples include building entrance and exit ramps, widening doorways and passageways, lowering the height of kitchen cabinets, modifying smoke detectors or fire alarms, installing support bars, installing an elevator in the home.
2. Improvements for Energy Efficiency (Tax Credit)
Above we described installing a reflective roof as an improvement made for energy efficiency. Others include installing solar water heaters and solar panels, installation, and use of small wind turbines.
Many of these tax credits have been changing for tax years 2017-2021. The roof tax credit was extended to December 31, 2021, whereas some wind, geothermal, and fuel cell enhancements were last valid in the 2017 tax year. If you’re planning energy-efficiency-related improvements, check first with your accountant to see if the tax credit is possible.
3. Improvements to Your Home Office (Deduction)
Many people are working from home now, and the good news is that if you are self-employed, principally work from home and your home office is your regular and exclusive office, you qualify for this deduction.
- Examples of improvements you can deduct include:
- Office space repairs, e.g., repairing a broken window
- Office space improvements, e.g., installing a second telephone line
Some repairs and improvements made to your home office will inevitably have a positive knock-on effect on the rest of your home. The rule is that only improvements that directly impact your home office space are fully deductible. Those that have an improvement value on the rest of your residential property will be calculated as a percentage.
For example, if you install new insulation in your home, whatever percentage of your home the office takes up is the amount you can deduct from the total cost. If the insulation job costs $2,000, and your office was deemed as 10 percent of your home, then your deduction would be $200.
These deductions should be applied for within the same tax year that they are carried out.
4. Rental Property Renovations (Deduction)
This is another deduction you can apply for in the same tax year that you do them. If you own rental properties and have to perform any repairs or other upkeep to maintain it as a habitable space for tenants, then that work is tax-deductible. Repairs are seen as necessary and are therefore deductible.
If you want to improve or renovate the property, then it is not deductible immediately because these upgrades will depreciate over time. They become deductible over time as they depreciate.
5. Home Improvements that Add Value (Deduction)
Many people wish to renovate, make additions and otherwise improve their primary residence. Such improvements are typically made to help increase the property’s value when it comes time to sell. They are only tax-deductible under the following terms:
- They last more than one year and add value to the base cost of the property
- They prolong the life of the property or help it adapt to a new use
- Deductibles only apply in the tax year that the property is sold.
Examples include finishing the basement or attic, adding an outdoor pool, building an addition/extension to the home, building a new bathroom, and more. If you hope for these improvements to be deductible when you sell, you’ll need to keep itemized receipts for all work done and be able to show exactly where all the money was spent. That includes labor costs.
If you have any questions or need some more information do not hesitate to contact our experts at Dunsmore Exteriors.