Home improvement is a great choice for your tax refund check

If you are fortunate enough to receive a tax refund from Uncle Sam and want to use the windfall to save you money down the road, consider using it for home improvements. After paying off your credit card bills, many financial planners will tell you this is the best investment you can make with your refund.

Improving the quality of your home will add to its value. Even a coat of paint can make a difference. However, some home improvements can help save you tax money when you sell your home. These tend to be larger projects, but the average tax refund could pay a down payment.

Using your refund for home improvements is especially smart if you plan to sell your home in the near future. The tax savings generated from the improvement is realized when you sell. Home improvements that qualify as capital improvements can slash your capital gains taxes from the sell of your home. The IRS has very definite guidelines about what home improvements qualify, so visit the IRS’s web site or talk with your tax planner before you make your decision.

Most of the capital improvements are not repairs and are permanent. If you repair your central air conditioning unit, it is not deductible. However, if you replace the unit, it is. A refrigerator isn’t covered, but a more permanent, built-in unit is.

What else doesn’t count? Things like new carpet, new paint or repairing gutters or broken windows. However, if you do these things as part of a major remodel, they will be acceptable to the IRS. Keep all records of improvements to your home to prove they were made.

A good rule of thumb is that most capital improvements won’t require you to pay sales tax. If you pay tax on a home improvement, it most likely does not qualify under IRS rules.