Home remodelers can't cash in 'til they sell

 Home remodelers can't cash in until they sell

With tax season under way, we look at some recent online questions put to our tax experts -- the California Franchise Tax Board's Daniel Tahara and the IRS's Jesse Weller.

Q Can the cost of a home improvement (i.e., a $15,000 kitchen remodel) be claimed on a tax return?

A For federal income taxes, you generally cannot claim a deduction for kitchen home improvements. You can, however, add the amount of your kitchen improvement to the cost basis of your home. That amount includes all costs for materials, labor (except your own) and expenses related to the work.

You need to know the cost basis in your home to figure any gain or loss when you eventually sell it. Generally, your cost basis is what you spent to buy or build the home. Any adjustments (increases or decreases in value) are used to figure gain or loss when you sell.

In your example, the adjusted basis in your home would increase by the $15,000 cost of your kitchen remodel. Keep copies of receipts and payments to substantiate the improvements, such as labor/material costs for new countertops and cabinets.

Note: Repairs or upkeep don't increase a home's cost basis. For example, costs of repainting walls or fixing a cabinet door wouldn't boost cost basis. For details, see IRS Publication 523 (Selling Your Home) or Publication 530 (Tax Information for Homeowners) at www.irs.gov.

Here's the situation: A family member makes a loan to another family member (with a signed promissory note). The loan recipient files for bankruptcy, and the loan is discharged. Can the person who made the loan write off the loss?

A It sounds like you may be able to claim a bad debt deduction, as long as the transaction was a valid loan. Here are basic rules for the two types of bad debts, business and nonbusiness:

A business bad debt, generally, is one that comes from operating a trade or business and is deductible as a business loss. Nonbusiness bad debts are deductible as short-term capital losses.

In order to deduct a loss, the debt must be genuine. That means it arises from a true debtor-creditor relationship based on a valid obligation to repay a fixed sum of money. The taxpayer must be able to show he/she intended to make a loan, not a gift, when the transaction took place.

If money is lent to a relative or friend with the understanding that it need not be repaid, for example, it is considered a gift and not a loan. A bad debt deduction is not permitted for a gift.

To be deductible, a nonbusiness bad debt must be totally worthless (i.e., with no reasonable chance the amount owed will be paid) and the deduction may be taken only in the year the debt becomes worthless.

Taxpayers also must show they have taken reasonable steps to collect the debt. Bankruptcy is usually good evidence of a debt's worthlessness.

IRS Publication 550 (Investment Income and Expenses) has more on nonbusiness bad debts. For more on business bad debts, see Publication 535 (Business Expenses). Each can be downloaded or ordered fromwww.irs.gov. Or call 800-TAX-FORM (829-3676) for a mailed copy.

Ahead of the Bell: Housing starts

Ahead of the Bell: Housing starts

Builders are expected to have begun work on more homes in January than the previous month but are still way off the pace consistent with a healthy economy.

The housing industry has just finished the worst two years for new home construction in a half-century. And the pace of building has only gotten worse. In December, builders started work at a seasonally adjusted annual rate of 529,000 new homes and apartments — a drop of 4.3 percent from November and the slowest pace since October 2009.

The consensus forecast among economists is that home construction jumped to a seasonally adjusted annual rate of 535,000 homes for January. The Commerce Department will release the new report at 8:30 a.m. Wednesday.

In a healthy economy, builders start about 1 million units a year. They built twice as many in 2005, at the height of the housing boom. Since then, the market has been in decline.

The collapse of the housing market pushed the country into a deep recession. More than a year after the recession ended, it is still struggling.

Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.

The flat-lined housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

The trade association reported Tuesday that its index of builder confidence remained stuck at 16 in February, where it has been for four straight months. A reading of 50 signifies a positive outlook about the future.

The Worst Home Improvements For The Money

Not long ago a new bathroom paid for itself when a home was sold. Not anymore.

Ten Worst Home Renovations For The Money

Ten Best Home Renovations For The Money

Like many people, you might be under the impression that home improvements are good investments that pay for themselves when you sell your house. You'd be wrong in most cases. Except for steel entry doors, that is.

Such doors tend to recoup 102% of the construction cost when a home is sold. A front door made of fiberglass--which actually costs more to buy and install--won't pay off nearly as well. It only pulls in 60% of its original cost.

The sad truth is that most home improvements are like fiberglass doors, and won't come close to paying for themselves. Some projects--namely room additions and upscale remodeling--are just plain dollar drains, according to the 2010-2011 Cost Vs. Value report.

Ten Worst Home Renovations For The Money

Ten Best Home Renovations For The Money

The annual survey, conducted by Remodeling magazine in collaboration with the National Association of Realtors, compares construction cost estimates (provided by HomeTech Information Systems) with resale value estimates (provided by members of NAR) across the country for 35 mid-range and upscale home remodeling projects.

In 2005 renovations would, at the very least, recoup their costs on resale. Nowadays almost none do. With home prices tanking the past several years, the return on renovations has suffered, especially when it comes to high-end jobs.

"The first projects to start losing value were the bigger-ticket ones, and even now, when people are doing larger-volume projects, they still don't spend what they used to," explains Sal Alfano, editorial director of Remodeling magazine.

"You're competing against the prospective owner's opportunity to build it [an addition or upscale remodeling] themselves," seconds Elizabeth Mendenhall, vice president of committees for the National Association of Realtors. When it comes to renovations, it's vital to keep potential buyers' tastes in mind, not just your own, she says.

Obviously a homeowner with long-term plans to settle down should remodel however he or she sees fit. Construction costs are still down, and if you want to build that bright pink dream kitchen, have at it. After all, many homeowners are now opting to stay put and update their current homes to better fit their lifestyles.

Just be aware that that decadent kitchen will only retrieve $597 of every $1,000 spent if you decide to list. Other projects sure to lighten your wallet: Home office remodeling, which redeem a measly $458 of every $1,000 spent, sun room additions only $486 and bathroom additions at $533.

These numbers, based on a national average of local comparisons gleaned from across the country, vary relative to each market's values and demands. If you want to know how a project will specifically affect your property's value within your neighborhood, query a local Realtor, urges Mendenhall.

If you're going to shell out money on improvements, focus on your home's exterior. Windows offer relatively decent returns, as do garage door replacements and siding replacements. Still nothing, save that steel entry door, refills the home improvement coffers 100%--or even as much as 85%. The bright side is these fixes can boost energy efficiency, offer potential tax savings and, when the time does come to sell, add ever-vital curb appeal to your home.

Aspiring sellers would do well to make some basic fixes as well. Forbes reported last year that sellers could improve their homes for buyers more efficiently--and more cheaply--by simply tidying up the rooms and slapping a fresh coat of paint on the walls. Steve Domber, president of Prudential Serls Prime Properties, a real estate brokerage operating across New York state and Connecticut, also suggests replacing old carpets, using neutral colors and bringing more light into the home.

Improve Your Home With a Split Air Conditioning System

With the phase out of the R-22 systems it is more than likely getting close to replace your split air conditioning system. With all of the air conditioning and heating companies that are out there it can be tough to make a choice on what kind of system it is that you will need. For instance should you get a split unit with an electric heater? Or should you get a split air conditioning system with an electric heater and a heat pump? The answer to these questions will actually depend on where you are living geographically.

But the real reason that you should think about a new air conditioning installation in your home is the money you will save in the long run. First off, all of the new air conditioning systems that are manufactured these days come with an energy efficiency rating of at least 13, which is also known as a SEER rating. This is something that you should take into account if you are thinking about a new air conditioning installation for your home.

The higher the SEER rating on your air conditioning system is the less energy that the unit is going to use. Also you are going to see that the higher the SEER rating is on your AC unit is the quieter the unit is going to be also. With that said the units are actually a lot bigger as they go up in SEER ratings. This is something that you are going to have to consider if you have limited space where your old condensing unit is. This usually will have a problem in places such as condos.

When upgrading your air conditioning system make sure that the installers or engineers also replace your duct work and make sure that it is properly sized for the home. You also have to make sure the engineer sizes the unit right for your home. This is a lot more than guessing a tonnage based on just square footage for your home. A lot of this has to do with what type of insulation you have in your attics, what type of roof you have, and what type of material your home is built from. All of this comes into effect when properly sizing your new air conditioning system for your home.

Depending on where you live new air conditioning and heating installations can range anywhere from $4,000 and up. This all depends on how much modification will have to be done to the duct work, if not a complete re-haul of the duct work. For instance if your old unit is an 8 seer, and you get a16 seer air conditioning system installed you are not going to get anywhere near the maximum efficiency of the rated capacity for the new air conditioning system unless you modify the duct work so that you get the proper air flow.

Americans Choose Remodeling Over Moving

Americans Choose Remodeling Over Moving

For millions of Americans, the economy of recent years has forced a hold on the dream of moving to a larger house, relocating to a different area or building a new home.  Some homeowners have beenunable to sell their current property.  Others have been unable to secure a new mortgage due to tighter regulations.  As a result, many homeowners have sought to remodel their current properties – either to suit their own changing needs, or to attract the buyer and price they want.

Ever wonder what your fellow countrymen and women and doing to their homes?  It used to be that residential remodeling activity was reported by the U.S. Census Bureau, but the Census discontinued that survey at the end of 2007.  To fill the gap left by the Census, BuildFax, a division of BUILDERadius, has created the BuildFax Residential Remodeling Index (BFRRI), the only source directly reporting residential remodeling activity across the nation.

The information in the BFRRI is derived from relatedbuilding permit activity filed with 4,000+ cities and counties throughout the country.  Local building departments inspect construction to make sure it meets quality and safety standards; BuildFax is then able to consolidate this information into a central database, which is a tremendous asset to buyers and sellers of property.

The BFRRI reports trends in remodeling activity for the entire United States, as well as for the four major regions of the country: Northeast, South, Midwest and West. Updates to the index will be released in the middle of each month, on the day preceding the Census’s release of new housing starts.

The very first BFRRI, released on January 18, 2011, indicated that remodeling activity has returned to pre-recession levels. Combined with the depressed number of new housing starts, a significant increase in remodeling activity may indicate a more substantial shift toward reinvesting in existing homes over building new ones.

On a regional basis, the South and the Northeast continue to lag behind the Midwest and West.  According to the BFRRI:

• The Northeast was down 1.7 points (2%) month-over-month and down 4.9 points (6%) year-over-year. 
• The South was down 4.0 points (5%) month-over-month but up 6.5 points (8%) year-over-year.
• The Midwest was down 3.0 points (3%) month-over-month but up 3.9 points (4%) year-over-year.
• The West was down 1.1 points (1%) month-over-month but up 4.6 points (5%) year-over-year.

Find out how to continue snooping on national and regional remodeling stats at BuildFax.

DIY Lawn Sprinkler System

DIY Lawn Sprinkler System

There are a handful of options when it comes to a DIY lawn sprinkler system, and today I will be going over a couple of those so that you can be on your way to watering your lawn and keeping your grass green. The first one is the old fashioned pvc piping sprinkler system, and this involves quite a bit of labor on your part. What you will need to do is get a shovel and start digging trenches to the point where the sprinkler headsare going to be. Depending on where you live will determine how far down you will have to dig, if you are somewhere that gets freezing whether you will want to go down about 4 feet or so.

Once you got all of the trenches dug then you run the pvc to the sprinkler heads. After that you will have to fill in all of those trenches again and possibly resod the parts that you dug up. Like I said a lot of work.

Good to know that there are much simpler DIY sprinkler systems that are available these days and they will only get easier to install. Some of these sprinkler systems use flexible hoses to transport the water. Much more effective and more maintenance free than the traditional pvc piping sprinkler system. Another reason why these types of DIY sprinkler systems are better is that they run right under the sod line, so there is no need to dig several feet down just to run the hoses. There are many kits that are available that have detailed instructions on how to set up the sprinkler system, some may have timers while others will only be able to operate manually.

If you want the easiest way to water your lawn you can use a hose and a sprinkler. There are many types of sprinklers that are out there, and they do just as good as job as the sprinkler heads do, they water the lawn. There is really only one drawback to this and that is you have to walk the sprinkler out to the yard every time that you want to water the lawn. But this is by far the cheapest and easiest method to water you lawn.

Build Closet Shelving - HOW TO

Build Closet Shelving 1 - Planning and Designing

One of the most predictable sight gags on television involves a teenaged boy who has been instructed to clean his room. Upon coming into the room to inspect it, his mother is very impressed. The scene closes as she opens the closet door and a mountain of clutter pours out around her. Has this happed to you? Has your closet become a catch-all? Are you afraid to open the door? Even worse, would you want your mother to open the door?

We have probably all resorted to closet stuffing as a means of organizing our homes at some point or another. In fact, this guide is not meant to discourage you from filling your closets with as much stuff as possible. Hopefully, this will help you come up with a way to fit even more into your closets and still be able to find things when you need them. A clean, organized, and tidy closet does not have to be empty; it just has to be planned well. The following step-by-step guide will get you on your way to building effective closet shelving. Who knows, you may even choose to show Mom your closet when you're done.

Designing Your Closet Shelving

This step serves several purposes and should be done before you head out to buy supplies. By taking the time to make a good design, you will be able to create an accurate materials list and get a fairly good idea of what you will need to spend.

Begin by making a list of the kind of things you want to keep in the closet. Do you have a lot of shoes? Do you hang your clothes or do you need shelf space for folded clothes like sweaters? Maybe your closet space isn't for clothes at all, but instead a space where you want to keep old records or files. Whatever it is, you will need to plan accordingly.

The best way to begin a plan is to measure the space that you have. Measure each wall and get a blank piece of paper for each one. Make some rough sketches to help you decide how the space should be laid out, and use those sketches in conjunction with your measurements to figure out how close the shelves should be and how many you can potentially fit on each wall.

Maybe you have already decided what kind of material you want to use for your shelving system, but if you haven't, you need to do so while you are designing your space. There are two basic ways to build an organizational structure in a closet. The first is to use a system of prefabricated hangers and brackets that hold lightweight wire shelving coated with rubber. There are several manufacturers of wire rack shelving, but they are all similar in design and functionality. This wire shelving is available in a variety of sizes and depths and can be arranged to incorporate rods for hanging clothes. There are also a number of accessories available that are designed for hard items like shoes, which can be difficult to keep organized.

The second method is to build shelving units. The actual material that you choose is entirely up to you, and we will discuss a few of them, but the basic construction premise is the same for both. The most significant differences in the materials are found in aesthetic appearance and price. Other than that, you can count on using the same hardware for whatever you choose.

Once you have taken the time to design a closet shelving system that will meet your needs and you have determined which materials you want to use, you can move to the next step and put together your shopping list.

Build Closet Shelving 2 - Materials and Tools

The quantity of material that you buy, as well as the amount and type of hardware, will obviously be specific to what shelving you want to create. The following is a list of supplies that you want to make sure you don't forget, as well as a few tools that you will need to complete your job.

Materials and Supplies

Shelving Material: This, of course, is the key element. Using the plans that you have drawn up, measure how many linear feet of shelving you are going to need and then add 10 percent. Go ahead and buy the extra because you will most likely have short pieces that you can't use, and occasionally even the best of us make mistakes. If you are installing a wooden pole for hanging clothes, make sure you buy a long enough piece of stock.

Brackets: If you are using a wire shelving system, there should be a list on the product display that tells you exactly how many brackets, clips and anchors you need. Just follow the manufacturer's recommendations and maybe buy a few extras.

If you are building your own unit, you will need to buy a way to hang the shelves. There are a number of similar styles that all work on the same basic principle: A long, vertical steel channel is secured to the wall. To allow for the maximum amount of flexibility in your space, I recommend that you buy channels that go from floor to ceiling. This will allow you to place shelves at any level in the future. Go ahead and spend the few extra dollars on the full length channels now, and it will allow you to re-arrange your space for minimal cost when your storage needs change down the road.

The channel is lined with slots that accept a shelf support. That support can be placed at any height and can be purchased in a variety of depths. Buy enough channel stock to place them 18" to 24" apart and enough supports to hold up each shelf that you want to place.

Also, if you are installing a pole for hanging clothes, you will need to have a special bracket for that. These will probably be located in a different area of the store, but are inexpensive and very strong.

Screws and Drywall Anchors: These screws will be used to hang the steel channel stock on the wall. Use a 2" drywall screw if you are able to hang the steel right over the top of a stud. If not, then use whatever screw is recommended on the package of the anchors that you buy. There are many different styles of anchors. The easiest to use is a small plastic anchor that is shaped like a cone. The package will tell you how big a hole you should pre-drill. Lightly tap the anchor into the pre-drilled hole with your hammer, and then drive the screw right into it. When the screw is driven into the anchor it will swell, and thus prevent it from being pulled out of the wall.

Paint or Stain: If you choose to use natural wooden planks or plywood for you shelving, then you are going to need to seal it, either with paint or stain. By leaving it unfinished, you will allow a lot of unnecessary dust to accumulate on your belongings, and natural wood resins may even stain your clothes. You will also protect the life of the wood by sealing it. This protects it from seasonal changes that naturally occur and cause wood to shrink and expand as the humidity changes. This can, and often does, cause wood shelving to warp or even split. By sealing your shelves with paint, stain or even a clear sealer, you will improve the appearance, functionality, and life of your new creation.

Tools You'll Need

Drill: This is an ideal project for a cordless drill. You will use it to drill the pilot holes for you anchors. Additionally, a cordless drill that has multiple speed settings can be used to drive the screws that hold up your various anchors and brackets. I cannot emphasize how much easier it is to drive a screw into a stud with a power tool than it is to screw it in by hand.

Hammer: You will use your hammer to tap the plastic anchors into the wall.

Screwdriver: If you don't have a cordless drill, then the screwdriver will be necessary. In fact, it's a good idea to have one around even if you do have a cordless drill. Sometimes it can be tricky getting a drill into a tight spot or a corner, and you may find that the good old fashioned screwdriver serves you well.

Level: Unless you like your belongings running downhill, you are going to need a level to make sure everything is properly aligned.

Tape Measure: You will use the tape measure a lot throughout the full scope of this project. From the initial measuring of your space all the way down to the intricate measurements of your shelves' joints, this is one tool you should never be far away from.

Saw: A circular saw will be necessary if you are doing wooden shelving. It should be equipped with a nice combination blade that will allow you to cross-cut and to rip. You will use the saw to cut your shelving stock to the correct length, and you may also be using it to cut extra supports.

Wire Cutters: If you are using wire rack shelving, you will find these to be quite handy to have around. They are useful for trimming up jagged ends and make little adjustments when shelves don't quite fit right around corners and trimwork.

Pencil: Let your inner child free and use this to draw on your walls. Mark the location of studs. Make sure that you use a pencil and not ink. Pencil can be painted over, but ink tends to bleed through paint, even if you use multiple coats.

Stud Finder: If you are building something substantial that needs to hold any amount of weight, then it needs to be mounted into the studs. This tool is not absolutely essential because you can locate studs without it, but it sure does make it easier.

Paint Brush: Buy the correct applicator to correspond with whichever sealer you choose. Be it paint, stain or some other sealant, the product label should tell you exactly what you need to use to apply it in order to get the best result.

Build Closet Shelving 3 - Wire Rack Shelving Units

If, after looking at all of the available options, you decided to go ahead and use wire rack shelving, you should have purchased some product specific hardware with your basic materials. While the hardware is fairly self explanatory and each manufacturer will provide specific mounting instructions on the packaging, there are a few key things to remember so that your shelving is durable and doesn't come crashing down around you as soon as you begin to put weight on it.

The first thing to remember is that it is always better to hang your brackets over a stud if at all possible. This may mean that they are not centered on the wall, but it will greatly increase the strength of the shelf if it has been screwed into the framework of the house. Use the stud finder to locate the studs in the wall and then use your pencil to mark the location of each one. All of the major supports for your shelf should be located over one of these marks.


Unfortunately, closets are sometimes framed in unconventional ways, especially if it was worked into the construction of the house as an afterthought. If for some reason you are not able to locate your supports over a stud, make sure you use the drywall anchors when driving the screws that hold your supports. Never hang the supports in the drywall by themselves.

Once you have located and marked the studs, or determined where you are going to put your anchors in the wall, use your level to draw a light, straight level line in every place that you want to hang a shelf. By having a guideline on the wall that you know is level, you won't have to be standing back trying to eyeball the shelves. This will also prevent you from having to hold up the shelf with one hand and the level with the other while trying to lean back far enough to see if the shelf is straight. Does that read like a mouthful? Doing it is even harder, and sketching lines on the wall beforehand will make things much easier.

The actual installation of the shelves is usually pretty simple. One key thing to remember is to follow the steps in the order that the manufacturer prescribes. While it is possible to do some freelancing with wire shelving, you really shouldn't need to. The hardware is available to create just about any kind of system you could think up and the unit will be much more secure if you install it with the manufacturer's own supplies.

Build Closet Shelving 4 - Custom Made Wooden Shelving

Materials for Custom Shelving Units

The other option that we discussed for shelving units was to design and construct your own unit using wooden shelving. We'll discuss a few of the different options for materials here.

One of the least expensive materials to use is plywood. There are several different grades of plywood available. For the purpose of interior shelving units, I would recommend that you use a BC graded plywood. This type of sheeting has one side that is sanded smooth and has minimal knots, while the other side is rough. Obviously, the smooth side would form the top of your shelves and inside walls of any cubicle type shelves that you construct.

If you have a larger budget and want an even nicer appearance, you can use cabinet grade plywood that has a veneered top layer. This is available finished on both sides in a variety of hardwood species. Oak and maple are probably the most common. If you are hoping to stain your shelves, then this is probably the way to go. These cabinet grade pieces of stock take stain very well and will provide you with a beautiful and professional finished appearance.

Another option that is available for those who wish to create their own system is laminated shelving. This is made of a composite fiberboard that is then covered with a laminate veneer. Some veneers are just a plain solid color - white is the most common - and others are veneered with an imitation wood grain. These laminated shelves are available in a variety of depths and lengths and are very easy to use if you have a circular saw to cut them to the correct length. Another nice feature of these products is that they are often manufactured to fit perfectly into the pre-made shelf supports that many retailers sell. Other than adjusting the length, you should not have to make any other cuts. The shelves should just drop into place and fit perfectly. The laminated material also does not need to be sealed. No painting or staining is necessary, so you save yourself some money and time.

Installing Wooden Shelving

When you have selected the boards that you want to use for your shelving and have them cut to the correct size, it is time to begin hanging the channels and installing the supports.

1. Using the pencil marks that you made earlier to identify your studs, begin hanging the channels on the wall. Using the 2" drywall screws, mount the channels firmly against the wall. Use the level to make sure that they are perfectly vertical.

2. Once the channels are secure, you will find that the supports are quite easy to fit into the channels. Arrange the supports so that you can lay out the shelves according to your plan. The nice thing about using this system is that you can change it as your storage needs change. All you have to do is rearrange the supports and you can completely re-design your space in a very short amount of time.

3. It is a good idea to paint or stain your shelving before you set it into place. This allows it to dry better, as well as allowing you to do a better job. By laying it out flat in your garage or outside, you also prevent the unenviable task of having to paint corners while squished into the already tight space of your closet. If you do scratch the surface or get some marks on the shelves while you are installing them, it is very simple to go back and make little touch-ups. It's certainly easier to do that than to try to paint the whole thing while it is in place.

4. The last step will be to hang the pole that you will use to hang your clothes on. This is a system that is made up of two brackets which are mounted at opposite ends of the pole. You will find that one of them is a closed circle and the other is open. Mount the brackets using the hardware provided or you can use your extra 2" drywall screws. If you can't find a stud, again, use anchors. Clothes are heavier than you might think.

Install the closed bracket first and place the pole inside the circle. Slide the open bracket under the opposite end and make sure that the pole is short enough to allow the bracket to fit underneath it, but still long enough to rest in the support part of the open bracket. Once you are confident that it is the right size, grab a friend to hold the level on the pole while you mark the correct place for the bracket. At this point you can put the pole down and hang the remaining open bracket. When that is done, you should be able to put the pole first into the closed bracket and then place the other end in the cradle that is created by the second.

At this point you can stand back and take a proud look because you have just created a much better closet shelving system than what you had before. You now have the ability to organize and even categorize your belongings.