Are home improvements tax deductible? Sometimes - here are the rules.

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If you want to get a break on your taxes, you can get relief under your own roof. Some home improvements qualify for tax deductions, especially if they meet the IRS definition of “capital improvements.”

If that seems overwhelming, don’t sweat it. We’ll break down the rules so you know exactly which home improvements are tax deductible and which aren’t, so you can save at Uncle Sam’s while maintaining your property.

In this article:

Yes, renovating a home can be a tax deduction. Before you jump for joy at the skylight in your living room, here’s what you need to know: The IRS has strict rules regarding home improvements that qualify for a tax write-off.

In general, you can’t write off home repairs — general fix-up tasks like a fresh coat of paint or updating all of your bedroom doors. While these tasks can refresh the look and feel of your home, they qualify as general maintenance and maintain or restore your home to its foundations.

Now, for the good news: You can file a tax deduction when you make improvements beyond simple repairs. The IRS calls these types of renovations “capital improvements.”

The IRS defines capital improvements to property as those that meet one of three criteria.

It adds lasting value to your home
It will significantly extend the useful life of your home
Adapts your home to a new use

These types of renovations add to the base of your home’s value – the starting price. For example, a coat of paint looks great but doesn’t materially change the market value of your home. On the other hand, adding an accessory dwelling unit (ADU) can significantly change the market value of your home when you go to sell it. See the difference?

Now, let’s discuss this in more detail so you can easily identify the home improvements that offer the best chance for future tax savings.

Dig deep; Looking to build an ADU or in-law suite? Here’s how to finance it.

Now, it’s time to jump on the bandwagon – many home improvements qualify for capital improvements. Here are some examples:

Room renovations. Kitchen and bathroom lighting are some of the most popular.
Home accessories. A permitted garage, carport, in-law wing, deck or ADU can add value to a home.
Landscaping. New patios, rough spots and extensive permanent landscaping on a property can increase value and decrease curb appeal.
Major interior improvements. Flooring, fireplaces, and hot tubs can add value.
Structural improvements. A new roof, windows or siding falls into this category.
System improvements. Heating, cooling and plumbing may qualify.

That’s quite a list of tax-deductible home improvements, isn’t it? While many of these upgrades aren’t cheap, they all add value, life and functionality to your home for years to come. However, it’s not the only changes that can help you get a tax refund.

Learn more: How much is your house worth? How to determine the value of your home.

All kidding aside, here’s where the IRS shines: It offers taxpayers a variety of tax deductions and credits for various property improvements that may fall outside of the above capital improvements.

If you, your spouse, or a loved one who lives with you needs physical changes to your home because of a disability, these expenses may be tax deductible. Some common medical additions that qualify under IRS guidelines include grab bars, widening entrances and exits to your home, doors and hallways, and installing elevators to accommodate a disability.

To claim these expenses, you need to itemize your tax deductions. To be deductible, medical expenses must exceed 7.5% of your gross income (AGI).

Dig deep; The standard deduction compared to the listed – how to decide which tax payment method is correct

If you only use part of your home for work and improve the space, you may be eligible to deduct those expenses on your taxes. The IRS rules regarding home office deductions are strict, and you can only write off the amount of home improvements that apply directly to your designated office space. For example, if you repair your roof for $10,000 but only use 10% of your home’s square footage as a home office, your maximum deduction will be $1,000.

Our advice is to consult with a tax professional to make sure your planned improvements to your home office meet IRS guidelines. If you want some (not so) light reading, you can also browse. IRS Publication 587, Business Use of Your Home.

Read more: Who can claim a home office tax deduction?

If you own a rental property as your primary residence, you may be able to deduct some of the annual maintenance and repair costs when you file your taxes. Because rental income can be tricky, we recommend working with a tax professional to keep you on the right side of the IRS when understanding whether any rental property improvements or expenses are deductible.

Using a home equity loan (HELOC), home equity loan, cash out, or a loan like an FHA 203(k) to make a home improvement can translate into tax savings. With these loan products, you may be eligible to deduct the interest on your taxes when you use the money to pay for IRS-qualified capital improvements.

Dig deep; The mortgage interest tax deduction – how it works and when it makes sense

If you make energy-efficient improvements to your primary residence, you may qualify for an annual tax credit of up to $3,200. Credits include:

$1,200 per year in costs and improvements, including up to two exterior doors ($250 each), windows and skylights ($600 total) and a home energy audit ($150 total).
Up to $2,000 per year for qualified water heaters and pumps.

In the year Improvements must be made in 2023 or later and credits extend through the 2033 tax year. Remember that these are technically tax credits — not deductions — so they work a little differently.

Learn more: Tax Credits vs. Tax Deductions – What’s the Difference, and Which is Better?

In the year If you install qualifying clean energy equipment between 2022 and 2032, you can claim a residential clean energy credit. With this non-refundable credit, you can claim 30% of the cost of improvements for things including solar panels and water heaters. , wind turbines, fuel cells and geothermal heat pumps. Installed equipment must be new. you can use IRS Form 5695 To request the credit. Again, remember that this tax benefit comes in the form of a credit, not a deduction.

Sometimes, you can claim home improvement tax benefits quickly and regularly — for example, a tax credit for an energy-efficient upgrade or interest paid on a HELOC toward a major repair. But when it comes to capital improvements, it’s often a case of delayed gratification.

You usually can’t claim many capital improvements in the year you withdraw the money. Instead, these improvements increase your home’s cost basis — an important number that affects your tax liability when you sell your home online for a profit. These steps can help you track expenses and claim tax benefits.

Keep details of every home improvement you do, including invoices, receipts, loan statements, and contractor agreements. If you make changes over time, set up a filing system in the tax year. Consider taking before and after photos.

As we discussed above, some expenses may qualify for a current year tax credit. Here’s a good rule of thumb: You can often claim a tax credit in the year you make the expense. Most tax deductions that increase the cost basis of your home (except medical deductions) cannot be claimed until the year you sell your home.

If you qualify for tax credits in the current year, you can claim these credits using the appropriate IRS form or schedule. If you use tax preparation software, the Guided Preparation option usually helps you identify the credits and deductions that qualify for the current year and enter these numbers. If you have questions or are unsure how to claim tax benefits, contact a tax professional for advice so you don’t miss out on valuable savings.

Read more: How to file your tax return for free

Everyone wants to make a profit when selling their home. Fortunately, the IRS respects that and allows homeowners to enjoy some of the gain tax-free — as long as they’ve owned the home for the five years prior to the sale. Single homeowners get a tax-free gain of $250,000, and married couples filing jointly get double that — $500,000. Profits above these figures are subject to capital gains tax.

The capital gains tax brackets for the tax year 2024 are as follows.

Now, let’s look at your home improvement tax savings in action.

In the year Say you bought a house in 2015 for $300,000 and five years ago you completely renovated your kitchen for $50,000. That house If you sell it for a sweet $625,000 in 2025, you’ll make a net profit of $325,000. If you’re single, $250,000 is tax-free – leaving $75,000.

Since you file taxes as a single person, the IRS says you’ll get $47,024 at the 0% capital gains rate. Now, you’re looking at a 15% tax charge on the remaining $27,976. But wait.

The $50,000 you spent on the kitchen renovation will be added to your tax base.

$300,000 (original purchase price) + $50,000 (kitchen renovation) = $350,000 (new cost basis)

Now, your new IRS profit:

$625,000 – $350,000 = $275,000

The IRS gives you $250,000 in tax-free profits.

$275,000 – $250,000 = $25,000 net profit

Then, the IRS will give you a 0% capital gains rate of up to $47,024, which is more than the $25,000 gain, bringing your taxable gain to $0. This is a huge tax savings.

The original tax bill without the amendment added to the cost base:

$27,976 x 15% = $4,196.40

A new tax invoice update has been added to the cost basis:

Dig deep; Capital Gains Tax on Real Estate – How much you pay when you sell your home

Yes, you can write off home improvements on your taxes if you meet the IRS criteria for capital improvements. Capital improvements should add long-term value to your home, extend its useful life, or adapt it to a new use.

In some cases, you can write off a new floor plan on your taxes. The flooring should be permanent and meet the IRS criteria for capital improvements, which will add long-term value to the home. Before assuming that new flooring qualifies for a deduction, it’s a good idea to consult with a tax professional on specific IRS guidelines.

Renovations that qualify as capital improvements under IRS guidelines are not automatically deducted from capital gains when you sell your home. Instead, those renovations are added to the cost basis of your home and subtracted from the sale price of your home to determine how much of your gain is subject to capital gains tax.

This article was edited by Laura Grace Tarpley.