When it comes to tax deductions, the money you spend on your home can be categorized as either an improvement or a repair. A home improvement, like building a deck or adding central air, is something that adds value to your home. On the other hand, a repair is something that keeps your home in good operating order — like fixing a leaky faucet or replacing a broken window. There are very few qualified home improvements that may be deducted from your taxes, however, they do likely lead to tax benefits. Since a repair does not add value to your home, it can’t be considered for a tax deduction.
Repairs and improvements can be financially stressful. A home improvement loan could help put your mind at ease by giving you quick access to the funds you need for renovations and repairs. Visit the Home Renovation Loans page and the Home Repairs page to learn more.
Which Home Improvements are Tax-Deductible?
While most home improvements could lead to a tax break when you go to sell your home, some may save you money by offering an immediate tax deduction if you rent part of your home or work from a home office.
Home Office Improvement Tax Deductions
You could deduct all or part of the improvements you make on your home if you use a room in your home as an office. For example, if you convert a spare bedroom into an office and decide to expand the closet space for storage, you may be able to deduct the full cost of the expense. As an added bonus, repairs that benefit your entire home may also be deducted based on the percentage of your home that’s used as an office. For example, If you add central air to your home and your office makes up 10% of your home, you could deduct 10% of the cost to add central air to your home.
Home Renters Improvement Tax Deduction
As with the home office deduction, improvements you make as a homeowner to the portion of your house that’s being rented could be deducted in full from your taxes. If you decide to add a bathroom to the rental space, you can write off 100% of that expense. You can also write off a percentage of overall home improvements based on the size of the room you’re renting, so if you replace the roof on your home and your rental space makes up 25% of your home, you can write off 25% of the cost.
Other Types of Home Improvements That Can Lead to Tax Benefits or Save You Money
Renting out a portion of your home or using a designated space as a home office are the only two ways to earn tax deductions on home improvements. With that being said, here are a few other situations that could qualify you for tax benefits on home renovations.
Use Your Mortgage to Pay for Home Improvements
Another way to deduct a home improvement project from your taxes is to roll the expense into your mortgage when you buy your home. While what you borrow will accrue interest, keep in mind the amount you pay in interest may qualify for a deduction on your taxes.
Get Tax Benefits from Home Improvements for Qualifying Medical Expenses
With a little help from your doctor, home improvement projects for qualifying medical expenses may be tax-deductible. If your doctor suggests home modifications — like adding a wheelchair ramp — to provide care for you or a family member, you can write off the expense. Keep in mind, if the medical home improvement adds value to your home, it will not be tax-deductible.
Save Money by Upgrading Energy Systems
Energy-efficient home improvement upgrades not only save you money on daily expenses, but they may also give you a tax break. Solar hot water heaters, solar electric equipment, wind turbines, and fuel cell property are examples of equipment eligible for a tax credit.
Sell Your Home and Make a Profit with Untaxed Capital Gains
Home improvements that appreciate the value of your home may give you a tax break when it comes time to sell. If your home sells for more than what you paid, the profit you make may be considered a non-taxable capital gain. Just be sure to keep good records of how much you paid for your home and spent on renovations.
Home Improvement & Repair: Tax Write-Off FAQs
Home improvement and repair benefits can be a confusing topic. To help you more easily find the information you’re looking for, we’ve gathered some answers to frequently asked questions.
What’s the Difference Between a Home Improvement and a Home Repair?
When it comes to tax write-offs, there’s a clear distinction between a home improvement and a repair. Improvement is something that adds value to your home, like remodeling your kitchen or building a driveway. A repair is work you do that restores your home to its original value, like replacing roof shingles or fixing a broken window.
Can Major Home Improvements be Deducted from Taxes?
When you make a home improvement like installing central air or building an addition on your home, you can’t deduct the cost from your taxes, but you may be eligible for a capital gain tax break in the year that you sell your home. However, there are some exceptions. You may be eligible for a tax benefit if you make certain energy upgrades or medical-related improvements to your home.
Is Home Foundation Repair Tax-Deductible?
Fixing the foundation on your home would not be tax-deductible since it’s considered a repair. However, if the foundation repair adds value to your property, it could be considered a home improvement. In that case, you may be able to obtain a tax break in the year that you sell your home.
Are Some Improvement Loans Tax Deductible?
According to the IRS, you may be able to fully deduct interest paid on a loan that’s used to substantially improve your home if you meet certain IRS requirements.
Can You Write off Emergency Home Repairs on a Tax Return?
Emergency home repairs cannot be written off on your tax return. However, if you keep track of those expenses they may help you reduce your taxes when you decide to sell your house.
Can You Write off Repairs on a Second Home?
Generally speaking, you cannot write off repairs on a second home unless the home is used as a rental property or business office.
Are Rental Home Repairs Tax Deductible?
Yes – if you receive rental income for a property you own, you can deduct the cost of repairs from your taxes.
Are Home Roof Repairs Tax Deductible?
A repair like replacing shingles is not tax-deductible, but replacing an entire roof could be considered a home improvement which may give you a tax break when you sell your home.
Please note that this article is not intended to provide tax advice. Consumers should consult a tax professional about tax matters. For more information regarding the tax implications associated with obtaining a home loan, you may visit IRS.gov.