To be completely transparent about home improvements and taxes, you should know that most improvements and repairs are not tax deductible. So don’t anticipate a tax break if you’re installing a new patio or remodeling your kitchen.

The IRS classifies tax deductions as either improvements or repairs. A home renovation is a project that increases the value of your home. A repair is anything that keeps your house running smoothly, such as repairing a leaking toilet or replacing a damaged window. Most repairs cannot be deducted from your taxes unless they increase value to your house.

So, are there any tax-deductible home improvement projects? While the answer is usually no, there are some exceptions: capital improvements, energy-efficient improvements, and medical improvements.

Capital Improvement

A capital improvement increases the value of a home, extends its usable life, or allows it to be adapted for a new purpose. In some circumstances, these upgrades might reduce the amount of tax you pay on the profits from a house sale. But first, it’s critical to understand which sorts of upgrades are considered capital improvements.

According to the IRS, these are examples of capital improvements:

  • Systems: HVAC systems, wiring, security, lawn sprinklers
  • Additions: Rooms, bathrooms, decks, patios, garages, porches
  • Lawn and grounds: Landscaping and hardscaping
  • Exterior: Storm windows and door, new roof or siding, satellite dish
  • Insulation: Attic, walls, floors, pipes, ducts
  • Plumbing: Septic system, water heater, soft water system, filtration system
  • Interior: Built-in appliances, kitchen modernization, flooring, wall-to-wall carpet, fireplace

Since capital improvements increase the value of your house, they can lead to significant savings on taxes if you sell your home for a profit and increase the basis. The basis is the amount of money you’ve put into a property as a capital investment. If you sell your house for a profit, you will get a capital gain equal to your profit.

Installing Energy Efficient Equipment

You may be eligible for the residential energy-efficient property credit if your home renovations satisfy specific energy efficiency criteria. This tax credit entitles homeowners to a refund equivalent to a particular proportion of the cost of qualifying property. Qualified property refers to the following categories of energy-saving devices:

  • Solar panels
  • Solar water heaters
  • Geothermal heat pumps
  • Small wind turbines
  • Fuel cells (with a $500 limitation for each half kilowatt of capacity)

A tax credit is a one-for-one decrease in your tax liability. Some tax credits are refundable, which means that if your federal tax liability is less than your credit amount, you’ll get the difference as a refund.

Medical Home Improvement

Assume you made significant home renovations or installed specific equipment to assist a physically disabled person such as yourself, a spouse, or a dependant. In such a situation, the costs might be classified as medical expenses.

Construction of ramps, widening doors or hallways for wheelchair access, and adding improvements to restrooms or stairways, such as lifts and railings, will qualify for a full medical deduction as long as they do not enhance the property’s value. If so, a partial deduction is permitted.

In Conclusion

Even if your home upgrades do not qualify for a tax benefit, it is still a good idea to keep thorough records of your costs related to any home improvements.

In general, home improvements are not tax deductible, but there are certain tax-saving possibilities to consider. Capital upgrades can help save money on capital gains tax after selling a property, and some medical and energy-efficient improvements can result in tax breaks.

Are you planning your next home improvement project? Count on Mario & Sons Construction Group LLC!