Here's a question I have need the answer to--

[Ecumenist]

My husband and I are building a home from the ground up. We have been very diligent in keeping all of the receipts for everything, ie, material, fuel, etc. Here's the question: When we filed for taxes, I was under the impression that these were things that were tax deductible, along with things like the monies paid out for medical expenses etc. I was surprised to find out that, according to our accountant, that there had been some sort of change of in the tax laws disallowing these things. Now, the main reason that I was so surprised is because in 2000, we were in the process of starting construction on another home, (due to unforeseeable circumstances, we never actually began the process). However, we were told at the time by the owner builder folks to save each and every receipt because they weree tax deductible. Our accountant told us that this had changed over 15 years ago, which I thought was incorrect. In any case, is there anyone here who have built a home and knows if the costs associated with building is deductible?

BTW, I'm in northern California, if that helps.

[CC]

1. I would keep the receipts

though from what I understand there is no tax deduction for the cost of building (there is for mortgage interest, not sure about construction loan interest) but should you sell the house all cost would be deducted from any gains and would lower your tax bill. Also keep any receipts from improvements as time goes by for the same reason. I would also check into any tax breaks for energy efficient things you may do. Some states give a credit if your house is energy star rated and there may be other credits you can get.

[Longhorn]

3. That's exactly how I understand it and I don't think it's anything new.

It sounds like a miscommunication with the first accountant. The costs need to be shown so that one's capital gains reflect only the appreciation of the house and not just going from zero to sale price. However, even that isn't that much of an issue since capital gains on one's primary residence aren't taxed as long as you put the money into another primary residence, if I understand correctly.

[Whoa_Nelly]

2. Take a look here

Go to page two and read about Section 179:

http://www.irs.gov/pub/irs-pdf/i4562.pdf

You may want to print out this .pdf IRS publication.

Hope this helps.

Also, you can call the IRS and ask them specifically about your home construction deduction questions. :hi:

[lumberjack_jeff]

4. I built a home last year.

Our construction loan interest was deductible. Also, expenditures for energy efficient windows, doors, insulation, heating systems, solar equipment qualify for a tax credit. See form 5695.

Other than that, your expenditures are not deductible.

A caveat: you have the option of writing off either your sales tax or your income tax (not both). In Washington, we have no income tax, so our sales tax is really high. Despite that, even with our sales tax paid and our house (construction) interest we couldn't itemize.

[Jersey Devil]

5. Home building costs were never tax deductible

Of course you should keep records of all your expenses because at some time in the future when you sell the home that can be used to establish the base value for capital gains purposes, though market value is the real test.

But whoever told you that construction costs were deductible was just flat wrong. The law wasn't changed. Construction costs were never tax deductible for your home.