With tax season in full swing, many people are rushing to file their taxes and make the most out of those awesome tax returns. But by rushing, many people miss out on unexpected tax benefits that can come from things such as homeownership.
To properly prepare for tax season, you should spend some time performing an audit on your home and other expenses you’ve incurred throughout the year. The earlier you do this, the more accurate your audit will be, so it’s best to keep track of all your expenses throughout the year, instead of writing them down retroactively. For best practice, organize your finances in separate accounts. One way to do this is by setting up a separate, digital bank account for your home expenses. This creates a digital trail to follow when filing your taxes, and helps you avoid missing out on anything.
While not all home expenses are tax-deductible, with a track record of all your spending, you’ll be able to know exactly what you can and cannot deduct, allowing you to optimize your tax returns. If you’ve completed an audit on your smart home and are curious about ways you could get tax benefits from it, read on for a few great tips on what you can deduct for owning a smart home.
Home Improvement Tax Benefits
Like other home improvements, installing smart devices in your home, and the expenses that come with them, can come with some great tax credits. Anything from installing smart LEDs to fully integrating your home comes with expenses, which can—and should!—be recorded upon completion to help you reap their full benefits.
Keep in mind that this benefit can only be applied when you sell your home. This means that if you spend $15,000 on smart home devices and installation, you will not be able to deduct this from your current tax bill.
What this does mean, however, is that any investments you make into the property are added onto the total original value of the home, meaning you will be able to save more money on taxes upon selling. If your home initially costs $100,000, you can add the home improvement costs onto that initial expense so that they aren’t taxed upon sale.
Depending on how you chose to finance your smart home, you may be eligible for tax benefits as well. For example, if you refinance your mortgage to pay for these new devices, any interest you pay on the mortgage can be tax-deductible. This means that if you use a home refinancing loan to pay for smart home installations, you can start calculating the new interest payments into your tax credits.
If you use any discount points when financing, you also have the option to write those off of your tax bill. Discount points are when you chose to pay extra on a refinancing option to pay down your home loan faster. In most cases, a single point is equal to about 1% of the total house cost. This means that if you refinance your home, and use discount points alongside it, you are eligible to write those off as well.
Smart Home Office
Many people make use of smart homes by implementing technology into their home office. Having a home office connected to all other areas of the home allows for lots of productivity whenever you’re working and can save time, energy and money. As an added benefit for freelancers, business owners, and independent contractors, the home office actually comes with tax benefits of its own.
If you have a room in your home dedicated solely for business purposes, you can deduct the costs of furnishing it from your tax bill. This also means that any smart home devices you have installed in your home office have the added benefit of being tax-deductible as well, making them not just a helpful tool, but an option that saves time and money.
Green Energy Tax Benefits
If you’re currently powering your smart home’s devices with energy-efficient options, such as solar panels, not only will this save you lots of money, but due to the federal tax credit for green energy—it may also help you qualify for tax deductions. As a way to get people to move towards green energy options, the federal government is giving tax benefits to those who power their homes with solar panels.
In addition to this, given the move towards more energy efficiency, there may be more tax benefits for smart home devices opening up in the near future. Due to the environmentally friendly nature of many smart home devices, it wouldn’t be surprising to see tax credits extended and applied to some of these devices. Within the next 5-10 years, there is potential to see new tax benefits applied to smart home installations, such as smart LEDs and thermostats, all of which have the current benefit of saving you more money on electricity bills.
If you’re a homeowner thinking of installing smart home devices but are unsure about the benefits they’ll provide, keep some of this information on your mind this tax season. You may find that you’ll save lots on your tax bill by financing smart home devices this year. If you’re currently the owner of a smart home, remember to look back on what these devices cost you, and talk to a tax advisor about ways you can deduct these from your bill.