Get the Most Out of Remodeling
So you've decided to brave the dust and inconvenience — not to mention the expense — of a renovation project. If it's because you've always wanted a family room or extra bath and it will enhance your quality of life, go right ahead. But if you are planning to sell soon and want to increase the resale value of your home, consult a real estate professional first!
For some projects, resale value is projected to be more than 100% of the original investment; in some cases, quite a bit more. This is characteristic where property values are rising very rapidly, but also in areas where certain types of remodeling projects are taken for granted. For example, in a neighborhood where a deck is an expectation, adding one may well increase the resale value beyond the cost to construct the deck.
Nevertheless, if resale value is a major factor in any decision to remodel, the best course of action is to consult with a remodeler on construction cost and seek an assessment of resale value from a Realtor® active in the particular neighborhood.
To help you make a decision about remodeling or adding on to your home, here is a list compiled from Hanley-Wood’s 2004 Cost vs. Value Report of what you can expect to recoup on typical home projects*:
- Major Kitchen Remodel – 80% return on investment
- Master Suite Addition – 80% return on investment
- Family Room Addition – 86% return on investment
- Bathroom Remodel – 96% return on investment
- Bathroom Addition – 93% return on investment
- Attic Bedroom Addition – 104% return on investment
- Sunroom Addition - 90% return on investment
- Deck Addition – 88% return on investment
- Window Replacement – 100% return on investment
- Siding Replacement – 113% return on investment
- Roofing Replacement – 94% return on investment
(*averages for Dallas Metro)
Do keep in mind how renovations affect the marketability of your home. Real estate agents say a gleaming kitchen with state-of-the-art appliances, cork or hardwood flooring, stone countertop and lots of cupboard space can sell a house the instant a prospective buyer sees it. Conversely, a cramped, ill-lit kitchen with outdated linoleum and harvest gold appliances might scare buyers away. It screams money pit.
Bathrooms are another big draw. Both quantity and quality count. A house with two or three baths with quality fixtures and finishes will sell much faster than the same house with one bathroom with moldy grouting and ancient fixtures.
If you can't afford to renovate, update and refresh key rooms instead. Replacing an old countertop, repainting cupboards and walls and installing new door pulls and lighting can make a big improvement in your kitchen for a very modest price. Similar touches increase the appeal of older bathrooms, too. And fresh paint throughout your home is another low-cost, high-return project — it makes everything look cleaner and brighter, and buyers love a house they won't have to redecorate immediately.
If you plan to embark on a home improvement project, call me first for a qualified referral to a remodeling professional and to receive a FREE comparative market analysis of the resale value of your home.
Top 10 Tax Breaks for Homeowners
Here's a look at the Top 10 Tax Breaks for the homeowner/investor. Visit the Internal Revenue Services website, www.IRS.gov, for more details on each item.
- Mortgage Loan Interest: Deductions reduce your taxable income against which your taxes due are calculated.
- Home Improvement Loan Interest: You can deduct all the interest on a home improvement loan provided the work is a "capital improvement" rather than repairs, maintenance or cosmetic upgrades. Capital improvements typically increase your home's value.
- Points: You can fully deduct points associated with a home purchase mortgage, but not a mortgage broker's commission.
- Property Taxes: Property taxes or real estate taxes are fully deductible. Any local city or state property tax refunds reduces your federal property tax deduction by the same amount.
- Capital Gains Exclusion: Allows married taxpayers who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. The amount is halved for those filing single or separately.
- Home-Based Business Deduction: Home offices that use a portion of your home exclusively for business could qualify you to deduct a percentage of costs related to that portion. Included are a percentage of your insurance and repair costs, utility bills and depreciation.
- Selling Costs and Capital Improvements: When you sell your home, you can reduce your taxable capital gain by the amount of your selling costs, which include real estate commissions, title insurance, legal fees, advertising and inspection fees. Costs typically stemming from decorating or repairs -- painting, planting flowers, maintenance -- are also selling costs if you complete them within 90 days of your sale and with the intention of making the home more saleable.
- Moving Costs: To qualify, you must meet certain requirements including, moving within one year of starting your new job, moving 50 miles farther from your old home than your old job was and working full-time at the new job for 39 of 52 weeks following the move. Deductions include travel or transportation costs and expenses for lodging and storing your household goods.
- Mortgage Tax Credit: Mortgage Credit Certificates (MCCs) allow qualifying low-income, first-time home buyers to take a mortgage interest tax credit of up to 20 percent (the amount varies by jurisdiction) of the mortgage interest payments made on a home.
- Energy Tax Credits: The newest home-based tax credits were made possible last year by the Energy Policy Act of 2005. Tax credits of up to $500 in 2006 and 2007 are available for upgrading heating and air conditioning systems, insulations, windows, doors and thermostats, caulking leaks, installing pigmented metal roofs and for otherwise reducing energy waste in your home.