Only two things in life are certain: death and taxes. Now with mostly everyone working from home for almost a year now, you may be looking at your much-needed home improvements with a critical eye, since it is staring you in the face night and day. Paint me! Your walls shout out at you. Replace me! Yells your leaky refrigerator. Upgrade me! Says your bathroom that looks like it could have been a replica of the one at Studio 54 back in the day.
Home care is just as important as self-care. Especially in today’s day and age, where most of our time is being spent in our home. After all it’s an investment into your future and hopefully raises the re-sale value when you make that ultimate decision to finally sell your beautifully upgraded and remodeled home. What most people don’t know is that while upgrading your living situation ultimately comes with costs from contractors and supply warehouses, it might also add a big bill come tax season. If you live in California, here are some tips so that you can make the right financial decision when deciding to invest your stimulus checks on that home renovation. Of course all financial decisions should not be made without consulting your tax professional. This guide is meant to be a tool to discuss with your tax planner and financial advisor.
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Because your property tax is based on the value of your home, when you decide to upgrade or remodel your home a new assessment is made of your property and hence, your taxes increase. Anytime you need a permit or construction occurs, i.e.: adding a room, finishing your basement or expanding your square footage, your property value will ultimately increase. If you decide to add a bathroom or square footage to your kitchen, your value will increase but so will your taxes. Now replacing kitchen counters, isn’t going to raise alarm for a new assessment but adding that kitchen island and increasing the footprint of said kitchen might. Anytime you need to get a building permit, a copy of that is sent automatically go to the tax assessor to provide you with an updated property tax bill. If you just want to freshen up the paint and add some baseboards, you should be in the clear and can expect a similar tax bill to the previous year. Be sure to consult with your tax professional before making any remodeling decisions.
The most obvious event that will trigger a reassessment is when you go to sell it. As soon as the for sale sign goes up in your yard, the government is notified and is ready to cash in on any upgrades and improvements you might have made. And this is more likely when you’d receive your assessment than after your remodel, in our experience. The good news is the new owner will be taxed on the property’s new assessment. That way they can properly insure the home and have a starting point to earn equity.
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The other one is any new construction, like I mentioned before when you go to get your building permit it sets off a red flag that a property is about to go up in value. If you need a permit just for a repair or standard maintenance issue, then you are usually good to go. A new water heater does not constitute an increase in your property taxes. The good news is that you can always ask for a reassessment if you feel the recalculated tax bill is incorrect. If you were building to create a safer home regarding fires or earthquakes, which are common in California or if you were investing in upgrades to assist in someone’s disability those are usually exempt from property value increases. And in some cases qualify for tax deductions. Be sure to talk to your tax professional before taking on any significant home remodeling project.
Investing in your home is always a good thing, even if your taxes are increased. For instance, a kitchen remodel could cost you $72,000 in new cabinets, countertops, appliances, floors and lighting, but you will increase your property’s value by $50,000 with that new kitchen. It might be worth it to not have to find those matches every time you want to light the stovetop or crack the ice trays on your stained tile countertops to finally have that dream kitchen you’ve always wanted with working appliances that come with years of warranty and a lifetime of satisfaction. Let’s take a bathroom remodel for instance, you could invest $33,000 in that walk-in shower with the rain fountain and the oversized soaking tub and when you go to resell your property value would increase by $24,000. Grab the bath bombs and get soaking!
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Or let’s say you want to add onto your home with a spacious Master Suite including a luxurious walk-in closet, his and hers of course. Maybe add those cathedral ceilings finally with the skylight and add space for a chaise lounge to relax in the corner with a good book. That kind of major addition will run you around $140,000, which yes, is substantial compared to your kitchen and bathroom projects, and your stimulus may not cover that amount. However, your ROI or return on investment is significant with a resale value of over $95,000! Sign me up!
Looking for the best remodelers in Southern California? Sea Pointe Construction has the teams with the most experience that will make your home more beautiful and valuable!
Now when you are looking at companies to manage these projects, you want to look at the longevity of the company, the references they have and their resume. How many of these types of remodels have they done? Do they have renderings of what you are envisioning? Are they insured? Does the work come with a 5-year warranty? The answer to all these questions is, yes!
Sea Pointe Construction has been around since 1986. When it comes to the ultimate remodel, you want their expertise and unique designs so that you can have full control over what your envisioning and they can help make your dream home become a reality.
If you’re looking for a contractor and doing your due diligence, be sure to read our blog on 15 ways to check your contractors references.>>
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