The Lesser-Known Way You Can Save Money On A Home Office Renovation

Making your workspace look sleek and stylish is always a great idea. Unfortunately, in most cases, the IRS doesn't allow home office renovations as deductions on payable taxes. So, even if you install an entire roof or replace carpeting with a hardwood floor, you can't deduct the amount you used for this when filing your Form 1040. 

Instead, home office renovations go into building up the tax basis of your home. Although enhancing the tax basis of your home doesn't bestow immediate tax savings, it can lead to lower capital gains taxes when selling your house some years down the line.

Immediate tax savings are often only possible through depreciation, which is the portion of home office renovation you charge against income over several years. The good thing is that when you charge depreciation against income, you'll lower your net income, meaning you'll pay less tax. While you can save money on a home office renovation through depreciation, there's another lesser-known way to save a few bucks: via home energy tax credits. We're always looking for ways to save on taxes, so here's what to know about home energy tax credits.

Thanks to the Inflation Reduction Act of 2022, homeowners can save money on home renovations through the provision of home energy tax credits. The home energy tax credits come with two options: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. 

The Energy Efficient Home Improvement Credit applies when you make home improvements that help reduce your energy consumption, including installing insulation materials, biomass stoves, and heat pumps. The IRS allows you to claim 30% of the total energy efficiency costs, up to $1,200 for most items — and $2,000 for others, particularly heat pumps and boilers. This is from 2023 through 2032. One more thing: Energy Efficient Home Improvement Credits apply to existing homes, not new homes.

On the flip side, the Residential Clean Energy Credit comes into play when doing clean energy upgrades. Think of solar water heaters, fuel cells, and wind turbines. 30% of the total clean energy cost qualifies as a deduction, with no annual cap, except for fuel cell property. Although homes exclusively used for business don't qualify for both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit, you get full credit for either option if you use 20% of your home for business or less. 

So, the next time you're thinking of stylish ways to spruce up your home office, work with your CPA to ensure these tax savings don't slip through your fingers.