Are you expecting a tax refund this year? With the average American’s refund coming in at roughly $3,000, that’s a sizable chunk of extra change. And while the urge to splurge can be strong, the more savvy financial decision would be to put your extra cash to work for you. One way you can do that is by putting it back into your home to help boost its value. So, instead of spending this year’s refund on that new 4K TV, consider the following ways you can reinvest it in your home:
1. Routine Maintenance. We’ll admit it, home maintenance is not the most exciting use of your extra funds, but it’s something you’ve got to be prepared for. Think fixing roof leaks, repairing cracks in the foundation, or getting the HVAC system tuned up. Homeowners should plan to spend around 1% to 3% of their home’s purchase price each year on maintenance costs. So, for a $300,000 home, a repair budget based on 1% would equal $3,000 — the average tax refund!
2. Home Improvements. If your maintenance budget is at a healthy balance, why not tackle that remodeling project you’ve been putting off? Unlike repairs, some home improvements have certain tax benefits. In addition to maximizing the tax perks, be sure to choose a project with the best ROI. Insider Tip: Refinishing hardwood floors reaps a 100% cost recovery at resale and will only put you back about $3,000, according to the 2017 Remodeling Impact Report.
3. Energy-Efficient Upgrades. Taking steps toward a more sustainable home can have big payoffs, including lower utility costs, better air quality, and even increased home value. A few ways you can do this include upgrading to a more energy-efficient HVAC unit, installing solar panels, or switching to Energy Star appliances. Check out more ideas for how to go green at home.
4. Smart Home Features. Home automation is the way of the future, so why not get ahead of the curve and make your home more tech-friendly today? Smart homes provide better security and added convenience — not to mention they usually consume less energy. From smart surveillance systems to smart appliances to smart lighting, there are numerous possibilities. Learn more about smart home ideas and benefits.
5. Extra Mortgage Payment. Making extra mortgage payments not only helps you pay off your loan sooner but also helps you save money on interest by reducing the principal you owe. Depending on your situation, however, you may be better off putting that money into an interest-bearing investment account. Talk to your financial advisor to see which route is best for you.
6. Down Payment. If you’re saving up to buy a home, your tax refund can add a significant boost to your down payment fund. Consider this scenario: Let’s say you want to purchase a $200,000 starter home, and you qualify for 3% down. Estimating a tax refund of $3,000, you’d be halfway to your down payment goal! And with all the wealth-building opportunities that come with buying a home, allocating your extra cash toward a down payment can be a really smart move.
Don’t let your tax refund burn a hole in your pocket this year. Before you spend it, think of strategic ways you can use it to benefit you as a homeowner.