Are home improvements tax deductible?
January 10, 2023 6 min read
Thinking about turning your home garage into an office? Planning to update your kitchen? You’re not alone. Between 2019 and 2021, 59% of U.S. households undertook home improvement projects, according to the American Housing Survey.
In general, home improvements are not tax deductible. But there are a few exceptions. Learn about certain tax breaks you could be eligible for.
- Many home improvement projects don’t qualify for tax deductions. But some might qualify for a tax break or have other tax implications.
- Energy-efficiency and medically necessary upgrades may be eligible for tax credits that decrease your tax burden or lead to tax refunds.
- Capital improvements that add to the value of your home, extend its life or modify it for new uses may help reduce your tax burden when you sell your home.
What’s the difference between a tax deduction and a tax credit?
Some home improvement projects may qualify for a tax deduction, while others may qualify for a tax credit.
A tax deduction decreases the amount of your income before calculating how much you owe in federal taxes. Meanwhile, a tax credit can decrease the amount in taxes you owe or boost the amount of your tax refund.
How to claim home improvements on a tax return
If your home improvement project is tax deductible, keep all project-related receipts for tax and insurance purposes. Once you’ve filed a federal tax return, the IRS recommends keeping your tax records for three years after the date you filed or two years after the date you paid taxes—whichever is later.
Keep in mind that home improvement deductions can be taken only if you itemize tax deductions rather than relying on the standard tax deduction.
Capital improvement vs. home maintenance and repairs
When it comes to home improvements, it might be helpful to know the difference between capital improvements and home maintenance.
Capital improvements add to the value of your home, extend its life or modify it for new uses. For example, adding a deck, installing a new roof or modernizing the kitchen typically increases your home’s cost basis. And according to the IRS, the cost basis of an asset—in this case, your home—is its original cost to you.
On the other hand, home maintenance and repairs keep your home in good shape but don’t necessarily increase its value. This might include fixing broken stairs, replacing hardware or painting kitchen cabinets.
Can you write off capital improvements?
While capital improvement projects generally don’t qualify for tax deductions, they might have other tax implications. That’s because you can usually add capital improvement expenses to the home’s cost basis—which might reduce your capital gains taxes when you sell the house.
Remember that the cost basis of your home typically refers to the price you paid for it, along with taxes and fees. And the adjusted basis—which includes capital improvements—is the cost basis plus any increases to the home’s value.
To calculate a capital gain for tax purposes, the adjusted basis is subtracted from the home’s sale price. So when the adjusted basis goes up, the amount of taxes you owe when you sell your home might go down. However, the IRS says that up to $250,000 in profit from selling your home—or $500,000 if you’re married and file jointly—could be excluded from your taxable income. So you may not need to pay capital gains taxes regardless.
Are home maintenance costs and repairs tax deductible?
Routine maintenance and repairs normally aren’t tax deductible and can’t be included in the basis of your home.
However, repairs and maintenance that are part of a larger home improvement project can be rolled into the adjusted basis for your home. For instance, fixing a broken window is a repair, but replacing all of the windows in your house as part of a remodel could count as an improvement. And this might have an effect on any future capital gains tax when you sell the home.
Other tax breaks for homeowners
Potential tax breaks for homeowners also include deductions for home improvements that boost energy efficiency, meet certain medical needs or improve a home office.
Energy-efficient home improvements
Tax breaks are available for home improvements that increase energy efficiency or use renewable energy. Eligible projects might include the installation of solar panels, solar-powered water heaters, geothermal heat pumps, small wind turbines and solar roofing tiles.
Generally, the amount of an energy incentive tax credit is based on a percentage of the project’s cost and when the project was placed in service.
Medically necessary home improvements
Home improvements for medical purposes can qualify for deductions, but they’re deducted as medical expenses. Projects that might qualify include:
- Widening hallways
- Lowering counters and cabinets
- Installing ramps
- Adding a chairlift
If an improvement project boosts the value of your home, the increase in value is subtracted from the cost of the project. The difference can be counted as a medical expense. And if the project doesn’t increase the value of your home, the entire cost could be a medical expense.
It’s worth noting that only medical expenses that exceed 7.5% of your adjusted gross income are eligible for deductions.
Home office improvements
Generally, it’s possible to get a tax deduction for the expenses of a home office—if it’s the principal place that you do business. Home office deductions usually are based on the percentage of your home that you set aside for business, like a spare bedroom. But you often can’t deduct business expenses for a portion of your home that you use for both business and personal purposes.
Improvements related to a home office may or may not qualify for tax breaks, depending on the type of project. You could consult a tax professional to explore whether improvements you make to a home office can reduce your taxes.
Home improvement loans & tax deductions
Loans that may qualify for tax deductions include home equity loans and home equity lines of credit (HELOCs).
Home equity loans and HELOCs
According to the IRS, you can't deduct interest paid on home equity loans or HELOCs for tax years 2018 through 2025. An interest deduction may be available for tax years before 2018 or after 2025, though.
However, that deduction is available only when you use the loan proceeds to “buy, build or substantially improve” the home that secured the loan. For instance, you would not be able to deduct interest on a home equity loan or HELOC if the proceeds went toward paying off a credit card or buying a car.
Some lending products qualify for tax deductions on interest, while others do not.
Interest paid on mortgages and student loans is deductible. However, interest paid on personal loans and credit cards is not deductible.
Tax deductions for home improvements in a nutshell
Tax deductions for home improvements can be tricky to understand. It might help to consult a tax professional when you’re trying to make sense of whether a home improvement project qualifies for a tax write-off.