Home Remodeling ROI in 2012
People often refer to home remodeling as one of the best investments you can make. It’s a great way to update your home and keep up with growing trends or a growing family. The best part is, you usually get most of it back when you sell your home. The kitchen and the bathroom were always the shining example of this. But in 2010-2011 the trend for remodeling projects with the highest Return on Investment (ROI) have shifted from larger home remodels, to smaller home improvement projects. These projects include new exterior paint, window and door replacement, or garage replacements.
A high ROI a homeowner can expect on a kitchen remodel used to be 75-85%. however, according to this year’s Cost vs. value report that assess home remodeling projects from various regions all around the country, the ROI for a typical kitchen remodel has dropped to 57% for 2011. this is as much as a 30% decrease over the last 5 years. The drop does seem to be bottoming out, which is a sign that the housing market may be as well. But with such a significant drop, it can be easy to understand home remodeling contractors may be experiencing a decrease in kitchen remodels.
Conversely, contractors may be experiencing more work in the home improvement spectrum. Replacement projects typically outperform remodeling projects anyways due to their relatively low cost (a replacement project is any remodeling project completed under $18,000). one of the best replacement project a homeowner can do for their home is a window and door replacement. according to the Cost vs. value report, a window and door replacement can return over 70% of the cost, 13% higher than kitchen remodeling’s ROI. new windows and doors are considered a valuable replacement projects because there have been numerous advancement in window and door technology, specifically advancements in energy efficiency. this is especially appealing to homeowners since more efficient windows and doors can lower utility bills, which is a huge plus in this market. it might seem obvious that the value of saving money has wide appeal, but it wasn’t too long ago that double ovens and hummers were in fashion.
Home remodeling and the housing market have slowed down, but there are optimistic signs that things are getting better. according the Housing 360 report by Hanley Wood, about 42% of homeowners feel that it’s a good time to remodel their homes. for homeowner’s with a higher income of $100,000 or more, the statistic increases to 56%. The lack of credit still makes it hard for homeowners to buy new homes or renovate their existing homes. But recently, people have been watching their money closely and been able to provide the money for their home remodeling projects with cash. In fact, 80% of homeowners use cash for remodeling their home.
Real Estate Tax Deduction
Do you own any property that you rent out as investment? If yes, did you know that you can take advantage of tax deductions provided for owners of rental properties? that is right; aside from the income you earn by renting out and the possible profits from appreciation of your capital, owing a property can also reduce your income tax. in fact, rental real estate offers the most tax benefits compared to almost any other investment out there. here are some of the possible tax deductions property rental owners can enjoy:
1. Tax deduction from interest
Rental property owners can take advantage of interest as their biggest tax deductible expense. If you are paying interest payments on a loan you obtained to buy the property, or if you pay interest on credit cards for services and goods incurred due to rental, you can declare these for tax deduction purposes.
2. Tax deduction due to property depreciation
Rental property owners may also recover the cost of their property by considering depreciation. Depreciation takes into account the deterioration and the wear and tear caused onto the property over time.
3. Deduction from repairs
Taxation regulations also allow deductions brought about by repair and improvement-related expenses, as long as these repairs are necessary and reasonable. the costs of improvement are fully deductible in the same taxation year as they were incurred. Fixing gutters, repainting, fixing leaks and floors, and replacement of broken windows – these are some examples of tax deductible repairs.
4. Deduction from insurance
You can also reduce your income tax by deducting the premiums you pay for insurance related to your rental transactions. This includes landlord liability insurance, fire or theft insurance for your rental property. If you hired employees, you may also deduct the amount you pay for their health or compensation insurance.
5. Deduction from professional and legal services
You can deduct all fees you pay for accountants, lawyers, real estate advisers, property management services, and other professional services you hire for your rental activity. these are considered part of your operating expenses.
6. Tax deduction from hiring employees and/or independent contractors
If you hire the services of other employees to perform something related to the rental, you can also deduct the wages you pay them as part of your business expense.
7. Deduction from travel expenses
If you spend on travel expenses because of your rental business, such as when collecting rent or inspecting your rental property for maintenance, you can deduct your fuel expenses, meals and other related expenditures. even overnight travel may be deductible, as long as there are proper records to back up the claim.
As a rental property owner, there are tax deductions you can take advantage of to lower your yearly taxes. the abundance of these deductible expenses makes rental real estate one of the most attractive investments there is. Know which types you qualify for, and see how much potential savings you have been missing out on.