As you soak in the sun this summer, do not forget that some of your fun activities may have surprising implications on your taxes next year. Whether you are renting out your home, embarking on home improvements, investing in energy efficiency, or sending your children off to day camp, understanding the tax impacts of these activities can be beneficial.
Are you renting out your home to make the most of the summer demand? If you rent it out for 14 days or less during the year, that income is typically tax-free, transforming your temporary vacancy into a tax advantage. On the flip side, if you are renting your home for more than 14 days, you will need to report all your rental income but can also deduct rental expenses.
Home improvement projects on your summer agenda? Most are not immediately tax-deductible, but they can increase your home’s cost basis, potentially reducing your capital gains tax when you sell. But here is an exciting twist – if your summer improvements focus on energy efficiency, like installing energy-saving windows or doors, insulation, heat pumps, furnaces, or boilers, you may qualify for the Energy Efficient Home Improvement Credit.
Speaking of energy efficiency, if you are investing in upgrades like solar panels or geothermal heat pumps, you might also be eligible for the Residential Energy Efficient Property Credit, which can offset some costs.
Do not forget about the Child and Dependent Care Credit if your children are attending day camp while you work. Although overnight camps do not qualify, day camps can lead to tax savings.
Remember, tax rules can be complex, and every situation is unique. To fully understand how your summer activities could influence your taxes next year, consider setting up a consultation with us. We are here to help you navigate your financial landscape and prepare for the upcoming tax season.
Sources: www.irs.gov/TaxTip2023_90 and www.irs.com/TopicNo415
