Are you getting a tax refund this year? According to the IRS, about half of all taxpayers over pay their taxes. For those who do, the average refund now amounts to a little more than $3,000.
You probably have plenty of potential plans for your windfall, all of them vying for your attention. Urgent financial matters take priority but if you’re all caught up on those, consider reinvesting it in your home.
Home ownership provides you with some of your biggest deductions — the ones saving you most of those tax dollars year after year. Though your home can’t say ‘thank you’ for taking care of it, it pays you back in many other ways beyond those tax breaks. Likewise, it can negatively impact your bank account when you ignore its needs.
If you haven’t allocated all of your refund yet, here are four smart ways to put some or all of it into protecting your home’s value.
Funds for your home maintenance account
Estimates for the cost of annual home maintenance vary from 1% to 5% of the original purchase price of your home. If you haven’t already set aside those funds for this year, deposit your tax refund in a separate savings account or other interest-bearing account to pay for regular inspections, repairs and parts replacement every house needs from time to time. A neglected home can cost you more than one that’s regularly inspected, maintained and repaired.
When you take proper care and do preventive maintenance on components, you won’t be paying more frequently than necessary to replace them when they fail prematurely. Collateral damage from a leaking roof, for example, rotted window frames, busted plumbing or wet basements can cost you for new drywall, flooring and even costly mold remediation. If you’re not a DIY homeowner, put aside some of your refund for minor upkeep. It can help prevent potential problems before they become big headaches that may deplete your emergency fund.
Replacement windows for energy efficiency (and comfort!)
Your windows may not be damaged, but if they are older, single pane or aluminum frame and you don’t have storm windows, you could be wasting money heating and cooling your home. Lost heat in winter and excessive heat gain in summer can jack up the cost of your utility bills every year while you try to stay comfortable. Energy-efficient, dual-pane, double-hung windows cost anywhere between $150 and $1,000 each, depending on the features you want.
Energy Star-certified replacement windows can help reduce your energy use and can cut your expenses by an average of 12% each year. If that’s not fast enough to pay you back, some states, local utilities and municipalities offer incentives for energy-saving upgrades. You can replace a few windows at a time depending on what features you want in new windows besides energy savings. Increased comfort, indoor UV protection, curb appeal, improved light/views and noise reduction can be additional benefits of using your tax refund for replacement windows.
Attic insulation for a nice ROI
If your home is too cold in the summer or too hot in the winter, you may not have sufficient attic insulation. A professional energy audit can pinpoint exactly where and how to spend your tax refund to improve your entire home’s energy profile. If, however, you’re a DIYer who doesn’t mind braving the perils of crawling around in your attic, Energy.gov provides detailed instructions on how to check whether it pays to at least add more insulation up there. The average cost of a fiberglass attic insulation project is $1,268, according to the Remodeling 2016 Cost vs. Value Report.
Based on additional information compiled for the Cost vs. Value Report, real estate professionals estimate more attic insulation provides a 116.9% return on your investment. Potential home buyers like comfort and energy efficiency, too.
Entry door replacement for curb appeal
A new front door tells your neighbors and guests how much pride you take in your home’s appearance and what to expect within. It’s a relatively inexpensive investment. For a new fiberglass door with decorative half-glass panel you may spend the average tax refund of just over $3,000; for a steel entry door, it’s less than half of that. Even painting your existing door in a snazzy color and changing the lock set can give your front entry a needed lift.
Improving your home’s curb appeal tells the world how much you love living there. It’s also the nicest way to say, ‘Welcome.’ Return on investment is good, too, according to the Cost vs. Value Report — 82.3% for the fiberglass door and 91.1% for the steel door.
When making capital improvements to your home, save receipts and keep a log of those expenses. While you may not be able to deduct improvements like painting, maintenance and repairs, you can deduct quite a few upgrades from your cost basis to reduce or even avoid owing a capital gains tax on what you net from the sale.
Read more: What your guests notice most about your home