Is there a tax break for home modifications?

3 answers | Last updated: Oct 23, 2016
Springrain asked...

We are going to add on to our house to have my mother live with us. She is going to help pay for some of the addition. Is there any special tax write off for this - for her or us?

Expert Answers

Steve Weisman hosts the nationally syndicated radio show A Touch of Grey, heard on more than 50 stations, including WABC in New York City and KRLA in Los Angeles. He is a practicing lawyer specializing in estate planning and is admitted to practice before the United States Supreme Court. He's a public speaker and commentator who has appeared on many radio and television shows throughout the country, and he's the legal editor of Talkers magazine, the preeminent trade publication of talk radio. His latest book is The Truth About Avoiding Scams.

Your mother may wish to buy an interest in your home, such as a life estate whereby she would have the ability to live in the home throughout her lifetime. Although the laws differ somewhat from state to state this would permit some of her investment in the home improvements to be tax deductible while protecting the home from being able to be a countable asset should she later require Medicaid. You should check with an elder law attorney in your state to see how the law in your state will specifically apply.

Once she has an ownership interest in the home,the cost of homeimprovements directly related to medical care or to make the home more acessible to her with any physical limitation she may have may be deductible. The deductible amount of hte cost of the improvement is determined according to IRS regulations by subtracting from the actual cost of the improvement the increase in the value of the property as a result of the improvement. As an example, the IRS regulations cite an eleveator installed in a home to assist a person whose hear disease made it difficult to climb stairs. According to the IRS, if the installation of the evlecator cost $8,000 and the value of the home increased by $4,400, teh deductible amount would be $3,600.

Additionally, the IRS specifically allows certain home improvements as captial expenses that qualify for tax deductiblility as medical expenses, but does not consider them to increase the value of your home. These include building entrance ramps, widening doorways, installing railings in bathrooms, lowering kitchen cabinets and landscaping to provide easier access. You should consult an accountant for specific advise.

Community Answers

Elderadvisor answered...

What you are doing is becoming more and more common. And kudos to you for increasing your mother's chances of aging in place and avoiding a long term care facility. You would be best served by obtaining guidance from an elder attorney or professional to help you structure this transaction especially since rules can vary from state to state. If your mother gives you the money to pay for some or all of the addition it will likely be viewed as a gift and disqualify her from long term care Medicaid benefits for five years. There are ways to handle this to reduce that exposure. There is probably no tax write off for you - but if you provide assistance with ADLs, you could think about a developing a care agreement but her payments to you for the care would be taxable. Again, best to consult a professional as there may be other benefits available to her as well.

Chris moore answered...

Here in Virginia, we have a Livable Homes Tax Credit that extends a credit on state income tax up to $5,000 for improvements made to your home that increase accessibility or visitability. It also applies if you purchase a new home that has accessibility features built in. The type of features which are eligible for the tax credit include accessible route to the entrance, a zero step entrance, wider doorways and hallways, accessible bathroms, accessible outlets, switches, and controls, and sensory modifications. Check with your state and local jurisdiction to see if there is a similar program in your area. The awareness of aging in place is growing so I expect to see more encouragement of home modifications in the future.