It’s been one of the snowiest winters that I can recall. Despite all of that downright balmy-for-February weather they prattled on about during the Super Bowl, it’s yet another snow day here in the northeast. The icy rain turned to snow at around 5:00 a.m. and the forecast calls for up to 9″ of snow by tomorrow.
Here’s what that means for families. No school for the kiddos (again). Limited availability for work. Icy roads. Slippery sidewalks. Snow shovels and snowplows galore. And booze. Lots of booze.
It’s also expensive. The temperatures have been so cold that we’ve managed to blow through much of the firewood for the winter already and our oil bills (oil heat is quite common in the northeast) have long since topped four figures. Ouch, right? Other out of pocket costs that folks are shelling out these days include all of those snow-melting chemicals and salts, snow shovels, plowing costs for sidewalks and driveways, fancy new snowplows – and of course, sleds (Note to my friends in the South: they call them toboggans up here. Weird, right?).
Apparently, sleds are mandatory.
So as the snow and ice piles up – and our bank balances get lower – is there anything to help offset these costs? Any sort of tax breaks?
The answer for most families is no. Staying warm and dry, while desirable, isn’t generally tax advantageous. The associated costs are considered personal expenses and therefore, not deductible.
That doesn’t mean that you’re completely out of luck. 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 the 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.
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.
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 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).
Homeowners and renters who claim the home office deduction can use the new simplified calculation ($5/square foot up to $1,500) or deduct actual expenses, pro-rated as appropriate. If heating and other winter-weather related costs are significant, deducting actual expenses might make more sense. This allows you to take those non-deductible expenses, like heating costs, and deduct the portion attributed to your home office so long as those expenses are related to the business use of your home; you cannot, for example, deduct the cost of your heated pool. Expenses completely attributable to a home office (shoveling expenses, for example, to a dedicated office entrance) may be deducted in full without pro-rating. Winter weather or not, the regular rules for claiming the home office deduction still apply.
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. Also, keep in mind that Section 179 limits for 2014 have been knocked back down to a mere $25,000.
And it’s not all about expenses. If you own a snowblower or snowplow, you can likely make a little extra money this season by charging for your services. Ditto if you have a shovel and some elbow grease (I’ve seen desperate pleas for shovelers all over the internet). That income is taxable – don’t forget to report it if, as self-employment income, you cross that $400 threshold. Similarly, don’t forget to deduct your associated expenses: you pay tax on the net, not the gross income.
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 (my daughter might have heard some choice language when this almost happened to us). 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 a 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.
I hope, however, that you don’t have to rely on too many of these tax breaks to get you through the season. It’s February and we still have a bit more winter to go (yes, Punxsutawney Phil did see his shadow). In the meantime, do your best to stay warm, safe, and dry!
