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Foundation Repair: Is it Tax Deductible? (Homeowner's Guide)

June 13, 2023

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Are you a homeowner asking if foundation repair is tax deductible? If so, that's an excellent and vital question for anyone facing foundation repairs! Those repairs might run thousands of dollars. It's good to understand how you can lower those costs overall. On the other hand, you don't want to claim something on your taxes unless it's allowed.

In most cases, residential foundation repair is tax deductible for rental properties. Also, you might deduct some expenses if you're self-employed and maintain a home office. Some repair costs might offset capital gains taxes on a sold property.

If this all sounds confusing, you're certainly not alone! As with most tax deductions, the "devil is in the details" of your property's use and needed repairs. Moreover, remember that state and federal taxes differ, and tax laws differ from state to state.

Lastly, remember that laws change from year to year. As such, what was right for your tax returns last year might not apply this year. Consequently, you don't want to make any assumptions about potential deductions for foundation repairs. With that in mind, note some general foundation repair tax deductions guidelines.

is foundation repair tax deductible

Is Foundation Repair Tax Deductible?

As you read through this information, remember that an attorney or accountant is your best source of information. A professional can ask all the right questions about your property's use and repair expenses. Then, they can offer specific information about filing your taxes and claiming all the deductions for which you're eligible.

Understanding repair versus improvement

Remember that the government typically differentiates between repair and improvement when claiming home expenses on your taxes. Routine home repairs generally are not deductible, while you might claim some improvements.

For instance, you typically cannot claim the cost of replacing some roof shingles on your taxes. On the other hand, you might be able to claim the cost of an entirely new roof. Why the difference?

The reason for this is that repairs usually protect the value of a property, not improve it. You usually can't sell the property for more money after repairs. However, home improvements often raise a property's value. Consequently, you can claim costs that help offset taxes on that increased value when you sell the property.

If you're still confused, consider an illustration. Suppose an appraiser values your home at $200,000 but needs some everyday roof repairs. After those repairs, its value still sits at $200,000. Those repairs haven't earned you any extra income.

However, suppose that home needs a full roof replacement, at a cost of $10,000. After replacing the roof, an appraiser now values the property at $225,000. If you sold your house for that price, you would pay capital gains taxes on that extra $25,000.

In turn, you might be able to deduct those reroofing costs, as an expense against capital gains. In other words, if it cost you $10,000 to replace the roof, you didn't earn $25,000 in gains. Claiming those costs then lowers your added capital gains to $15,000, the amount you earned after your reroofing expense.

In the same way, foundation repair isn't typically seen as an improvement, as rarely does it increase a home's value overall. Since you probably won't pay more in capital gains tax after foundation fixes, you usually can't deduct them.

Make sure to speak with a foundation repair company who knows what they're talking about when you have your home foundation inspection.

Rental properties and home offices

Rules for deducting repair costs are different for rental properties and home offices. In many cases, rental property repair costs are deductible against your rental income taxes that year. As with capital gains, you're spending that money to make money. In turn, you can typically deduct that cost for a rental property.

However, tax deductions typically apply to areas used for work alone. As such, you might be unable to deduct foundation repair costs even if you have a home office. That foundation isn't typically considered part of the office itself.

On the other hand, some foundation repairs are considered an indirect expense for anyone self-employed. Consequently, don't expect to deduct it from business expenses that year or assume you can't claim those costs. Instead, speak to an accountant for direction if you're self-employed and work from home.

When to claim those costs

Lastly, it's good to remember when to claim eligible costs. Typically, you claim costs to offset capital gains the year you sell a home. You would usually need to declare and pay taxes on those capital gains after selling. In turn, that's when you claim repair costs against those taxes.

On the other hand, you usually claim repair costs for rental properties and home offices in the year of repairs. Your accountant can explain how this might apply to you. However, don't assume you can claim a deduction against capital gains for a home you haven't yet sold!

determining write off and deductions for foundation repair on a rental property

Does Insurance cover Foundation Repair Costs?

If you can't deduct your foundation repair costs from your taxes, you might wonder if they're covered by insurance. First, insurance doesn't cover everyday repairs and general home maintenance. Second, property owners must consider insurance riders and exclusions when making policy claims.

What insurance does and doesn't cover

Homeowners should remember that their insurance typically covers accidents, vandalism, etc. It's not meant to reimburse you for regular repairs! You won't receive reimbursement after paying for leak patching, slab jacking, and other fixes.

The exception to this rule is if your home is damaged due to vandalism, an earthquake, a hurricane, etc. Also, most insurance policies cover accidents such as a tree falling onto the house or a car running into it. In those cases, you might expect reimbursement for your repair costs.

Additionally, insurance carriers don't cover repairs due to a property owner's neglect. For example, a contractor might alert you to a leaking irrigation system that risks a sinkhole. Suppose you neglect to fix that leak, and a sinkhole damages your property's foundation. Your insurance carrier might contest your request for reimbursement because you failed to address those needed repairs.

Riders, exclusions, additional coverage

Remember that riders, exclusions, and other special rules dictate insurance payouts. For instance, an insurance carrier might require homes in floodplains to carry added flood insurance. Without this outside or extra coverage, you might not get reimbursed for flood repair costs.

Also, some carriers might have special housing exclusions depending on their area. For instance, your policy might not cover sinkhole damage for a home in the tropics. An insurance carrier might also fight claims based on poor-quality DIY repairs.

It's good to carefully read a policy before assuming what it covers for all these reasons. A property attorney can also explain technical terms and how they apply to your property. You'll then know if that policy covers foundation repair costs or if you should invest in increased insurance for your home.

Lastly, check on such coverage before buying a home with foundation damage! You don't want to discover that you won't get reimbursed for repairs you thought were covered. Also, you don't want to face unexpected insurance costs for homes in floodplains or other such areas.

Insurance payouts and tax deductions

Finally, remember that you're not likely able to claim reimbursed expenses as a deduction. In other words, you can't write off foundation repair costs if your insurance repaid you those costs! You didn't face that expense if you've been repaid or reimbursed. In turn, checking with an accountant before you risk "double dipping" on your tax returns is good.

What Increases Home Value the Most?

If you're worried about your home's value overall, repairs should be at the top of your "to-do" list! While needed fixes might not increase a property's value, neglecting them can decrease that value. Also, note some improvements that almost always improve a home's value:

  • Adding usable square footage. This can mean an add-on such as a sunroom or might include finishing a basement or other space. Adding outdoor space also counts, so consider installing a new deck or patio.
  • Anything that adds energy efficiency to a home will usually increase its value. This might include solar panels, upgraded insulation, or new windows.
  • Many real estate agents tell you that kitchens and bathrooms sell a home! In turn, upgrading either space can mean a great return on investment. However, remember that you don't always get as much of a return for high-end finishes as you might expect. Keep your update functional for maximum value.
  • Remember to update your property's exterior when trying to increase value! New landscaping, fresh paint, and updated doors and trim create a stunning aesthetic. These simple touches can increase value for far less cost than many other home improvement projects.

Total Foundation Repair Austin is happy to help answer the question, is foundation repair tax deductible? Hopefully, we have given you some useful information to consider. However, remember to consult with an attorney or accountant regarding tax advice. Additionally, you can call our foundation repair contractors when you're ready for needed fixes. We'll get your property started with a FREE inspection and estimate. For more information, call today.


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