Are Home Improvements Tax Deductible?

Are Home Improvements Tax Deductible?

Ian Mutuli
Updated on
Ian Mutuli

Ian Mutuli

Founder and Managing Editor of Archute. He is also a graduate architect from The University of Nairobi, Kenya.
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Most homeowners don’t know, but some home improvements are tax deductible. However, before tearing down your bathroom and kitchen walls expecting significant tax write-offs, you should consider several factors. To begin, you should differentiate tax deductions from tax credits. You should also understand the various types of tax credits and deductions and identify home improvement projects that qualify for these benefits.

The regulations that guide tax-deductible home improvements might seem complicated. However, hiring home remodeling experts for your whole home remodel ensures that you benefit from these tax reliefs. If you recently remodeled your home or are planning to make some improvements, the following projects are eligible for tax deductions.

1.Energy-efficient home improvement projects

Home improvements designed to make your home energy-efficient are eligible for tax deductions. Such improvements include installing energy-efficient doors, roofs, insulation, and windows. Other energy-efficient upgrades include improving your heat pumps, central AC, circulating fans, and water heaters. However, your improvements should meet specific energy-efficiency standards to qualify for energy-efficient credits.

2.Capital improvements and taxes

Capital home improvements are renovations designed to increase home value and extend its lifespan. Such improvements mostly reduce the tax payable from the proceeds of the property sale. However, you should know the specific types of capital improvements that qualify for tax deductions. The IRS lists the following capital improvement projects for tax relief:

  •  Systems – Household systems, such as HVAC, ducts, humidifiers, security, air and water filters, and lawn sprinklers, improve property value.
  • Interior installations – Flooring, fireplace modifications, built-in appliances, and kitchen upgrades qualify for tax deductions.
  • Insulation – Floor, pipes, walls, and attic insulation are tax deductible.
  • Plumbing systems – Soft water systems, water filters, septic systems, and water heaters are tax deductible.
  • Exterior – Includes new roofs, siding, storm windows, and satellite dishes
  • Home additions – Bathrooms, bedrooms, garages, patios, and deck installations qualify for tax deductions.
  • Lawns and grounds – Includes driveways, walkways, fences, landscaping, and swimming pool upgrades.

Ideally, you shouldn’t report capital gains from selling your property if you meet specific requirements. Key requirements include that you should have owned the home for five years or more, and the profit margin should be less than $250,000 or $500,000 for married homeowners.

Similarly, you should understand the differences between capital improvements and repairs. While repairing your property feels like capital improvements to homeowners who’ve spent time and money, the IRS won’t necessarily consider them capital improvements. Home repairs, such as painting rooms and fixing gutters, are general maintenance, not capital improvements.

Home repairs only become capital improvements if they are part of major projects, such as extensive restoration or remodeling. For instance, while replacing broken windows is considered repairs, they become capital improvements if replacement is part of a large project.

3.Home improvements for medical reasons

Specific home improvements done for medical reasons qualify for tax deductions. If your home improvement projects are designed to improve medical care for homeowners, their spouses, or other dependents, they are considered medical expenses on taxes. These projects can also be considered capital improvements if they increase property value. Home improvements that qualify as medical expenses include:

  • Installing entrance and exit ramps
  • Installing support bars or railings in bathrooms
  • Modifying smoke detectors and fire alarms
  • Installing grab bars and handrails
  • Modifying staircases
  • Widening doors or modifying hallways
  • Lowering kitchen cabinets

Note that home improvements designed for aesthetic purposes cannot qualify for tax deductions as medical expenses. Eligible improvements should adapt the home to disabled individuals.

4.Home office improvements

Specific home office improvements also qualify for tax deductions. You can qualify for tax deductions if your home is the principal center of your business and if you have an exclusive home office space. Tax laws surrounding home office renovations have undergone significant changes recently. For instance, unlike before, employees who maintain home offices apart from their employees’ offices are not eligible for tax deductibles.

However, home office remodels for self-employed individuals working from home are deductible. Fortunately, home improvements and repairs are eligible for tax breaks provided the projects exclusively involve rooms in your home used to run businesses. Home office projects eligible for tax breaks include:

  • Repairs made exclusively to home office space
  • Improvements to office space
  •  Repairs to other parts of your home are partially deductible

Endnote

Knowing which home improvement projects are tax deductible is the first part. The second important part is knowing when to claim deductions on your home improvement projects. Ideally, tax deductions and credits on home improvements should be claimed after the end of a tax year. However, homeowners can claim tax deductions if home improvement projects are meant to improve resale and depreciation deductions.

Ian Mutuli

About the author

Ian Mutuli

Founder and Managing Editor of Archute. He is also a graduate architect from The University of Nairobi, Kenya.