There are few things more sure in life than death and taxes — and for homeowners, home improvement is also a certainty. Over the past two years, American households spent $522 billion on projects, according to the 2021 Census Survey of Homeowners. That’s a big jump from the $300 billion over the previous decade, but even more notable is the increase in project size and cost.
The 2020 pandemic forced many Americans to spend more time at home, and some of that extra time was spent on projects that were “can’t wait” repairs or upgrades. But while it may be tempting to go all out on a new kitchen or bathroom, not every upgrade adds value to your home. To avoid spending money on projects that will not pay off when it comes to selling, consider the following guidelines:
1. Pick the right project.
It’s important to choose renovations that will boost your enjoyment of the space, and a primary suite (that’s a master bedroom with its own bathroom and walk-in closet) is an excellent choice. Just be aware that it’s one of the most expensive upgrades, so it will take some time to recover your investment.
2. Do the math.
Before you hire a contractor or purchase materials, it’s important to do the math. Many homeowners underestimate the total cost of their project and end up overspending. In fact, a recent NerdWallet survey found that more than half of the homeowners who had done projects in the past two years said they had to make sacrifices or go into debt to pay for them.
3. Stick to the plan.
A major mistake some homeowners make is to start a project and then change course midway through, especially when it’s an extensive remodel. This can not only increase the overall cost of the project but could also hurt resale value. Unless you’re a professional remodeler, it’s usually better to follow your initial plan.
4. Don’t forget about tax breaks.
If you’re thinking about making an investment in your home, it pays to keep the federal and state tax deductions for qualified home improvements in mind. These deductions can save you up to $1000, depending on your situation. Check out Hippo’s guide to the specifics.
5. Think about resale.
If you plan on selling your house someday, consider how the project will impact resale value. Adding an accessible shower, a walk-in bathtub or grab bars to your bathroom can help you sell the home later in life and may qualify you for a tax credit. Similarly, replacing old carpet with hardwood floors can enhance your home’s look and feel and may boost its resale price. It’s a good idea to consult with a real estate agent to get their opinion on what improvements will have the most return. Then, do your homework to find out exactly how much you can expect to recoup on your project. And of course, it never hurts to talk with a tax professional to learn more about how your renovations may impact your tax bill.
