I woke up to the sound of sleet hitting my window this morning. Lots and lots of sleet mixed in with heavy rain. The snow, I was prepared for… but not this weird mix of snow, sleet, and freezing rain. The worst part? On parts of the east coast, we’re expecting some variation of this weather for the next several hours.
Here’s how that translates in real life. No school for the kiddos. Lots of workplaces are closed. Roads are icy. And grocery stores shelves are largely empty. The reality: in between lost revenue and increased expenses, dealing with winter weather isn’t cheap.
So as the snow and ice pile up – and our bank balances get lower – is there anything to help offset these costs? Any sort of tax breaks?
The bad news first: the answer for most families is no. Staying warm, dry, and safe, while desirable, isn’t generally tax advantageous. That means, for most* taxpayers:
- You cannot deduct the cost of paying someone to shovel your walk.
- You cannot deduct the cost of buying or operating a snowblower.
- You cannot deduct the cost of heating your house.
- You also cannot deduct the cost of booze even if, with the kiddos home from school, you’re sure it’s a medical necessity.
(For more on expenses that you generally cannot deduct, click here.)
I say most* because some part of some of those expenses may be deductible for taxpayers under certain circumstances. For example, homeowners and renters who claim the home office deduction may claim otherwise non-deductible expenses, like heating costs, so long as those expenses are related to the business use of your home and are pro-rated accordingly. Expenses completely attributable to a home office, like shoveling expenses for a dedicated home office entrance, may be deductible in full. Winter weather or not, the regular rules for claiming the home office deduction still apply. If that’s all too much for you to figure, remember that you can use the simplified calculation for the home office deduction ($5/square foot up to $1,500).
(For more deductions for the self-employed and small business owners, click here.)
Additionally, if you rent out space for residential or commercial use, you can deduct the costs of snow removal and other costs of cold weather maintenance. There is a catch, however: all deductions and expenses are not created equal. While you can deduct the cost of equipment for the maintenance of residential rentals, you generally cannot expense it under Section 179 (property used to furnish lodging tends to be excepted property); it must be depreciated over its useful life. For 2017, the deduction limit under Section 179 is $500,000.
And if the snow is upping your entrepreneurial spirit, you can likely make a little extra money by charging for your services. If you have a shovel and some elbow grease (I’ve seen desperate pleas for shovelers all over the internet) or a snow plow, you can easily turn yourself into a one-person snow removal service. The income is likely taxable (you must report it if, as self-employment income, you cross that $400 threshold) but you can deduct your associated expenses: remember that you pay tax on the net, not the gross income.
What about the booze? It’s not deductible as a personal expense and not always deductible as a work-related expense. Unless, perhaps, you’re Jason Derulo.
Ditto for stocking up on milk, bread, and eggs. You don’t get a tax break for buying those supplies, but on the plus side, you totally have the ingredients to make French toast.
That doesn’t mean that you’re completely out of luck on the tax side. While you can’t deduct winter-proofing improvements to your home, if they add value to your home and prolong its useful life, you can add those costs to your home’s basis. Your basis is generally the cost at purchase plus improvements (and other adjustments). A bump in basis will come in handy at sale since you pay capital gains on the difference between the selling price and your basis: the higher the basis, the less gain for tax purposes. Don’t forget that you’re entitled to exclude up to $250,000 of gain ($500,000 for married couples) from the sale of your primary home if you owned and lived in the property for at least two years.
(You can find out more about basis here. You can find more information about selling your home here.)
So what kind of winter-related improvements can add to your basis? Heating, for one. Adding a heating system, fireplace or wood stove, or replacing your furnace, pipes or ductwork would qualify because they’re considered long-term improvements; in contrast, space heaters, fuel expenses, and firewood are temporary and don’t add to basis. A good rule of thumb is that improvements that would remain in the house – those that are nailed down or otherwise not separable – tend to be considered additions to basis.
Replacing the water heater or insulating your pump house (or other spaces, like an attic) would be considered improvements to basis. Heated sidewalks and other ice-melting landscaping additions would also qualify, as would a heated swimming pool. Replacing storm windows and doors – or a new roof – to keep out the wind and snow would likewise result in a bump to basis.
You’ll want to keep records relating to cost basis for longer than normal. You should usually keep tax records for three years after the due date for filing your tax return, but when it comes to basis, you’ll want to hang on to basis-related records for as long as you own your house (yes, really).
Finally, as with all winter weather, there’s always the possibility that you could run into some sort of terrible luck. Your roof could collapse, or your pipes could freeze and burst. You could skid into another car on an icy road – or worse, a vehicle could slide into you. If you suffer a financial loss as a result of the weather, and your insurance doesn’t have you covered, you may qualify for the casualty loss deduction. To claim a casualty loss, you must itemize your deductions. Your loss is generally limited to the lesser of your adjusted basis or the decrease in the fair market value of your personal-use property (different rules apply for business property) minus any adjustments for insurance reimbursements. If your loss deduction is more than your income, you may have a net operating loss: this is an exception to the rule that you have to have a trade or business to claim a net operating loss. Keep good records and consult with your tax professional if this applies to you.
Depending on how widespread the bad weather turns out to be, the IRS could also provide filing and penalty relief to taxpayers – remember that certain returns are due tomorrow. I have reached out to Internal Revenue Service (IRS) to find out whether they anticipate offering any such relief and will advise as soon as I have an answer. In the meantime, stay warm, safe and dry.
