High home prices and historically low interest rates, coupled with many employers allowing working from home, have created a unique opportunity to invest in upgrading home offices. However, before you start getting contractor quotes or knocking down walls, there are many things you should consider first.
Improving any part of a home can have financial, tax, liability and retirement implications depending on how involved the project might be. A home office adds a unique twist to the project for two reasons. First, if you are an employee, your tax deduction may not be as great versus being self employed. This is where your financial advisor or tax advisor should weigh in on the decision. Second, you could be triggering additional income taxes depending on what state you live in if you are migrating to mostly working from home.
A great benefit of adding a home office or improving a home office is home values and the timing is excellent for many areas of the country. More and more companies are embracing remote employees, and suburban areas are seeing an influx of families leaving nearby cities for greater quality of life. Homes that have a ready-built office will likely increase in value over time.
The very first thing to do when considering an upgrade is checking with your municipal building codes. You want to pull the correct permits, otherwise you could invalidate insurance should a problem occur or incur fines, and of course avoid physical harm by following codes. A licensed contractor completes these permits on your behalf, but make sure they as the homeowner is ultimately liable.
You definitely will want to tell your insurance carrier you are doing this project so you are covered from a risk perspective. You should also check with your employer to see if they can reimburse you for some of the expense. Some employers are saving a great deal of money on rent, insurance, utilities and other costs, so it never hurts to ask.
Many people are not aware that the physical configuration of a home office can have direct financial implications. For example, in most municipalities, a room with a closet is considered a bedroom and property taxes are accordingly higher. Conversely, by removing the closet in an unused bedroom your new home office will reduce your property taxes assuming the local assessor agrees. The flip side to this coin is home value, in that fewer bedrooms reduces resale value at a future date.
If the upgrade is more than just paint, carpet and the standard “Teamwork” poster for your wall, you will want to carefully weigh how you pay for it. Regardless if its all cash, a HELOC (Home Equity Line of Credit), or refinancing of your current home mortgage, you will want your financial planner or financial advisor to help you think through the ideal options given your specific situation.
Thankfully, there are many options available to improve your daily work/home environment.
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