You might have heard you can claim home improvements on your tax return to pay less in federal taxes. While home improvements can indeed provide tax benefits, not all projects qualify for deductions.
In this article, I’ll clarify which upgrades legitimately reduce your federal tax burden, so you can maximize savings. Specific criteria determine whether a remodel is eligible for write-offs. Following the recommendations here helps you claim valid deductions and avoid issues with the IRS come tax season. Stay informed and claim every legal tax break to keep more of your hard-earned money.
What Is the General Rule for Home Improvement Tax Deduction?
In general, home improvements and home repairs are not tax-deductible. However, projects that add to the value of your home can adjust your cost basis, effectively decreasing the taxes you owe for capital gains when you sell your home.
Let’s look at the main differences between home repairs and home improvements when it comes to the IRS and your tax return.
Home Repairs vs. Home Improvements
Home repairs and improvements make your home a better place to live, but they differ from each other in terms of purpose, scope, and cost. Most home repairs are not tax-deductible, while some home improvements are.
It can be confusing for homeowners to tell the difference between home repairs and home improvements, so here’s a quick rundown to help clear things up:
- Home repair: This involves fixing any damages or problems that already exist in the house. Home repairs serve the fundamental purpose of restoring functionality to specific components or systems in the home. This typically includes fixing broken appliances, patching holes in the wall, unclogging drains, replacing broken window panes, fixing leaky roofs (explore how to fix your roof), etc. For example, if your air conditioning stops working, fixing it would be a home repair.
- Home improvement: A home improvement involves enhancing your existing home beyond necessary repairs. Home improvements aim to increase the comfort, aesthetic appeal, and, sometimes, the home’s value. Home improvements cover a broad range. On the smaller scale, they include projects like repainting rooms or replacing plumbing and electrical fixtures. Larger endeavors qualify, too — things like adding home extensions, full kitchen remodels, new HVAC system installations, and major landscaping work. For example, if you as a homeowner, decide to replace your functional but old kitchen cabinets with newer, more modern ones, this would be considered a home improvement, not a home repair.
Remember, home repairs generally do not qualify for tax deductions. However, home improvements may be tax-deductible if they increase your home’s value, add new functional elements, or extend the lifespan of major components. Distinguishing repairs from eligible improvements is key to maximizing tax benefits.
For IRS tax purposes, it’s helpful to frame home improvement projects in terms of capital improvements and capital repairs.
Capital Repairs vs. Capital Improvements
Capital repairs and capital improvements are often discussed in relation to commercial properties, but they’re also relevant to residential properties. Capital repairs seldom qualify for tax credits, while many capital improvements homeowners make are eligible for IRS tax deductions.
Capital Repairs
Capital repairs are any projects done to maintain the good working order of a property. These projects typically don’t add home equity to the property or add a new use to your home, so they do not qualify for tax deductions.
Replacing a patch of worn shingles on your roof is an excellent example of a capital repair. Shingle repair is necessary to maintain quality living conditions in the entire home, but it doesn’t prolong the life of the roof as a whole. Another example would be fixing a leaky faucet.
Capital Improvements
On the other hand, capital improvements are elective projects that usually increase the value of a property. An example of a capital improvement would be one that prolongs the life of a property Replacing an aging HVAC system or installing a new roof are capital improvements.
Work that adapts a space for a new use is also usually considered a capital improvement and may be tax-deductible. Examples of projects that add new uses to a residential property include finishing a basement and converting an attic to create extra living space.
The table below summarizes the key differences between capital repairs and capital improvements to help visualize what is and isn’t applicable come tax season.
| Capital Type | Value | Prolonging Life | Adapting to New Uses | Tax-deductible |
| Capital Repairs | Don’t add value to a property | Are meant to return to baseline functionality, not prolong life | Don’t add functionality to a property | Almost never |
| Capital Improvements | Typically increase the value of a property | Often increase the longevity of crucial home systems (HVAC, roof, etc.) | Change how a property can be used (finishing a basement, converting the attic, etc.) | Sometimes |
What Are Examples of Tax-Deductible Home Improvement Projects?
Whether a home improvement project qualifies for tax deductions often depends on your local tax laws, so research the specifics before proceeding. While certain federal incentive programs offer tax benefits for home improvements, homeowners should not overlook potential local government initiatives. Local and state governments commonly offer tax incentives for renovations ineligible for federal programs.
The best way to determine if a home improvement project is tax-deductible is to start by considering the project’s purpose. If the improvement is for personal benefit and doesn’t qualify as an energy efficiency upgrade, disaster recovery, medical necessity, or home office use, it likely won’t be tax-deductible.
If the home improvement you’re considering involves improving your home’s energy efficiency, is a medical necessity, or applies to a home office, it might qualify for tax benefits. Your best bet is to consult a certified public accountant (CPA) who can help you examine your local laws and maximize your tax deduction.
You can also check the Database of State Incentives for Renewables & Efficiency (DSIRE) to look for city- or state-specific energy efficiency tax breaks.
Tax-Deductible Home Improvement Projects
Below are some examples of typical tax-deductible home improvement projects.
- Disaster repairs: If your home was damaged in a federally declared disaster, your repairs may be eligible for some tax relief. You could deduct the cost to repair the damage as a casualty loss on your federal income tax return, but the rules around this can be complex and are subject to change. I recommend consulting a tax professional specializing in disaster relief who can help you make sense of your situation.
- Energy-efficient upgrades: Certain home improvements could qualify for federal tax credits, including installing solar panels, small wind turbines, and geothermal heat pumps. Additionally, energy-efficient appliances, windows, doors, and insulation may be eligible for tax credits at the state or local level. Energy Star ratings can help you find products that are likely eligible for energy-efficiency tax benefits.
- Home Office Expenses: If you’re self-employed or use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses related to that part of the home as a home office deduction. This usually includes part of your utility bills or costs related to maintenance or repairs in that specific part of your home.
- Medical modifications: If you have medical needs that require changes to your home, you can often deduct these costs as medical expenses. These home improvements include installing entrance ramps, modifying bathrooms, lowering cabinets, widening doors and hallways for wheelchair access, adding lift systems, and similar changes. You’ll usually need documentation from a medical professional stating you need such systems to take advantage of the tax benefits.
Non-Tax-Deductible Home Improvement Projects
Not all home improvement projects are tax-deductible. If your project doesn’t fall into one of the categories covered in the previous section, it likely doesn’t qualify for any tax benefits.
Below, we’ll include a few examples of projects that typically don’t qualify for tax deductions:
- Cosmetic changes: Cosmetic changes that do not significantly increase the home’s value or extend its useful life generally are not tax-deductible. This includes things like interior painting, wallpapering, and other decorative home improvements.
- Luxury upgrades: Luxury upgrades like a home theater, wine cellar, swimming pool, or an outdoor kitchen are typically not eligible for tax deductions. Anything that counts as “nice-to-have” rather than a necessity does not qualify for tax benefits.
- Non-energy efficient upgrades: Upgrades like new windows, doors, or insulation typically are only tax-deductible if they are specifically energy-efficient and meet the criteria for energy efficiency tax credits.
- Personal preferences: Upgrades or modifications made to a home based on personal preferences or lifestyle needs are generally not tax-deductible. Examples would be adding a pool, installing a gourmet kitchen, and routine backyard landscaping.
- Routine maintenance and repairs: Routine home maintenance is typically not tax-deductible. This includes replacing light bulbs, repainting due to normal wear and tear, and regular home upkeep.
What Are Tips to Maximize the Tax Benefits of Home Improvement Projects?
Dealing with the government can often be a lengthy and difficult process, and that’s never been more true than when you’re trying to reduce your tax liability. To make your life easier, I’ve included some helpful tips to make claiming a home improvement tax deduction a little less painful in the following sections.
Keep Detailed Records
Keeping detailed records is the most important thing you can do to make claiming a home improvement tax deduction easier. This includes receipts, contracts, and before-and-after photos of any work done. This will be important if you ever need to prove the expenses you claim — and believe me, you’ll likely have to prove it at some point.
Get the Forms You Need to File Early
What forms you need to fill out will vary depending on the type of home improvement you’re doing and the specific deduction you’re claiming. Below is a quick summary of the forms you’ll need for the most common projects that qualify for deductions.
- Disaster-related repairs: If you make repairs due to a federally declared disaster, you might be eligible for tax deductions. You’ll typically need to itemize these deductions on Schedule A of your federal tax return the same way you would for medical improvements.
- Energy-efficient improvements: Claiming a tax credit for energy-efficient home improvements requires you to fill out IRS Form 5695 and include it with your tax return. The credit will be part of the cost of the home improvement — up to a specified limit — based on the project. You should consult your accountant if you’re uncomfortable filling out the form.
- Home office improvements: If you’re claiming a deduction for a home office, you’ll need to use either the standard or simplified methods for home office deductions. The standard method requires you to calculate the actual expenses of your home office. The simplified method allows you to multiply a prescribed rate by the square footage of your office. I recommend the simple method for most homeowners — although the standard method can sometimes get you a better deduction. You should speak with a CPA to determine what works best for your case.
- Medical improvements: If the home improvement is for medical purposes, you’ll typically need to itemize deductions on Schedule A of your federal tax return to claim the expenses. You can only deduct medical expenses exceeding a certain percentage of your adjusted gross income.
Adjusting the Cost Basis of Your Home
If you make significant capital improvements to your home, you can reduce your capital gains tax when you sell it by carefully documenting the total improvement costs.
Your home’s cost basis is the price you paid for the house, plus a percentage of the closing costs, plus the total cost of capital improvements you’ve made over the years. If you don’t include the cost of your capital improvements, you could pay significantly more in capital gains taxes when you sell your home.
Having over two decades of experience helping homeowners through the selling process, I recommend following this quick, step-by-step guide for adjusting your home’s cost basis:
- Keep records of the purchase: Your home’s cost basis starts with what you paid for the property. This includes the purchase price and most of the closing costs associated with the purchase.
- Document capital improvements: Keep a record of all capital improvements made to the property. Capital improvements add value to your home, prolong its useful life, or adapt it to new uses. They must be a permanent part of the home and last for more than one year, so try not to make substantial home improvements if you’re thinking of selling soon unless you have to.
- Calculate the total cost of improvements: Add the improvement expenses for all your capital improvement projects. This includes both the cost of materials and labor. Keep all of your receipts, contracts, and any documentation related to the home improvements in case you need proof of the work.
- Adjust your home’s cost basis: Add the total cost of all the capital improvements to the original cost basis of your home. This adjusted basis will be used when you sell your house to determine if you have a gain or loss.
So, Are Home Improvements Tax Deductible?
Yes, certain home improvements qualify for tax deductions, while others do not. Energy-efficient upgrades, medical accommodations, disaster repairs, solar installations, and home office expenses are typically deductible. However, the IRS generally disallows deductions for cosmetic changes, routine maintenance, personal preference modifications, luxury additions, and non-energy-efficient renovations.
To maximize your tax benefits, meticulous record-keeping is crucial. Failing to properly document qualifying expenditures can nullify deductions and eliminate recouping improvement costs from reduced capital gains. I recommend you maintain detailed records from the start to substantiate all eligible deductions and avoid IRS scrutiny of your tax return.
FAQs About Tax Deductible Home Improvements
In the following sections, we’ll include answers to some of the most common questions we get asked by homeowners about home improvements and related tax breaks.
What is the tax deduction for home improvements?
There is no single tax deduction for home improvements. Most home repairs and home renovations do not qualify for a tax deduction. The exceptions are projects related to medical care, repairs from disasters, home office expenses, and energy-efficient improvements — the deductions are based on the category and the specific repair.
Is new flooring tax deductible?
In general, no, new flooring is not tax deductible. However, installing new flooring might qualify for a tax deduction if you have to replace your floor because it was damaged during a federally declared disaster.
Can I deduct home improvements on a rental property?
Yes, you can deduct home improvements on a rental property by calculating the depreciation of its value over the improvement’s useful life. Practically speaking, this means spreading the cost of the home improvement out over several tax years and claiming a portion of the total cost each year on your tax return using Schedule E. This can be a complicated process, so hiring a CPA to help is a good idea.
