What Kind of Home Improvements is Tax Deductible?

Your home is a sanctuary and refuge. This is the place you run back to after a long day or week or where you spend most of your time hanging out with friends and family. At times, this can also serve as your work in one. As such, it’s only natural that you want to make changes that can improve your life.

Tax season is just around the corner and for those who are planning to make some home improvements this coming year, you’ll be happy to know that there are some home improvements and upgrades that can give you some tax deductions. There are some exceptions to the rule, especially when home improvements in general aren’t usually tax deductible. This article is for information purposes only. Don’t take this article as any type of tax advice. To make sure you have the correct information, ask your tax professional. 

Before you run off and tear down walls and other parts of your home, it’s imperative to know what these exceptions are so you can use these changes to your advantage. Get to know what these are through this article.

What is a Home Improvement?

A home improvement is also considered a capital improvement. This is basically a structural change or repair that is permanent, and by extension, one that increases the property’s overall value. This type of change can likewise breathe new life into the property in question or further extend the property’s life.

Given this definition, home improvements or capital improvements do not include nor consider simple home repairs and basic maintenance.

Some common examples of home improvements that fall under the aforementioned meaning include additions to your property, such as building a new room or bathroom, building a new deck, making new walkways or driveways, building a swimming pool, and installing a new plumbing system or central air conditioning, to name a few.

Are Home Improvements Tax Deductible?

To provide homeowners some context, tax-deductible here means that these improvements or changes to your home simply reduce your overall taxable income.

It’s worth noting that, as mentioned, home improvements aren’t exactly tax deductible. There are, however, some exceptions to this rule. In order to be considered a tax break for you, this should be a capital improvement, one that extends the life of the property or alters the use of the property in question.

Besides capital improvements, changes made to a home for medical reasons can also qualify for tax deductions. In addition to these, renovations that also make the property more energy efficient and save more energy in the long run, as well as home office improvements and upkeep for rental property situations may also be considered for tax breaks.

Since rules around home improvements and tax deductions are ever-changing, consulting a tax professional before conducting your desired home improvement project should be done.

What Tax Deductions Can Mean for You

Tax deductibles in home improvement measures can save you money in the long run. These can reduce the amount that your income is subject to for the year, and by extension, lower the amount of tax you have to pay.

Moreover, tax deductions also tend to work in your favor if you decide to sell your home for a profit in the future. This will likewise reduce the taxes you’ll have to pay on the sale of your home. This can be owed to home improvements boosting the cost basis of your property, and lowering your tax bill if and when you decide to sell.

Get to Know the Different Home Improvement Types That are Tax Deductible

Now that you know more about capital improvements and how they are related to tax deductions, we’re here to give a closer look at what home improvement types qualify for a tax break. Read on to know more.

Making an Energy Efficient Property

Energy-efficient home improvement projects are considered tax deductible. This is a great incentive, especially for homeowners who are planning to reduce their carbon footprint over time and hopefully help the Earth from furthering its demise.

To qualify for a tax deduction on this home improvement category, these should meet a certain energy efficiency standard. If you manage to meet such criteria, you may receive a credit that is equal to a percentage of the qualified property or the energy-efficient equipment you’re adding.

Some of the home improvement measures that fall under this particular category include adding solar water heaters, small wind turbines, solar water heaters, fuel cells, electric solar, and the like. You can also count energy-efficient windows, skylights, and insulation under this.

Other energy-efficient additions that can give you tax credits include central air conditioning, air-source heat pumps, and circulating fans.

Making Your Home Office More Efficient

Besides energy-efficient home improvement projects, changes and upgrades to your home office may also be given a tax deduction. This is because it can be written off as a business expense, particularly when you use your home office exclusively for business purposes.

Bear in mind, however, that you do not qualify for a home office tax deduction if you are already receiving a write-off from your employer or company under the W-2 tax form. The tax-deductible you could also get is 10% of the total home improvement costs.

Changes to your home that directly affect your home office, such as crafting a space dedicated to this, will affect your tax deduction.

Home Improvements for Medical Purposes

Homeowners who are considering making capital improvements out of necessity due to medical purposes will also be allowed to get a tax write-off, provided these exceed 7.5% of their adjusted gross income. However, these home improvements should not increase the overall value of the property.

Some home improvements for medical purposes that may be tax deductible include widening doorways and or hallways to allow wheelchair access as well as installing railings and lifts to aid people as they use stairways and bathrooms.

Moreover, home improvement expenses that also prevent or treat certain illnesses and conditions, as well as help mitigate these, will also be considered. Other projects that can prove useful to those dealing with medical conditions include lowering kitchen cabinets to a certain height and modifying fire and smoke alarms and detectors in the house.

Increasing the Resale Value of Your Home

If you are planning to sell your home for a profit in the future, you might benefit from tax deductions then if you do decide to undertake capital improvements. As previously mentioned, these include projects and expenses that boost the value of your property.

These improvements and projects will increase the cost basis, and by extension, lower your capital gains tax in the future. This means that to get this tax benefit, you will first need to sell your home.

Home improvement projects that fall under this particular category include adding a new room in your house, whether it’s a bedroom, a bathroom, a kitchen, or even an addition, the latter of which would be immensely helpful if you have people coming over and spending time with you and your family.

The addition of a swimming pool, a new deck or patio, as well as finishing your basement or attic also qualifies you for a tax deduction.

The Bottom Line

Improving your home is a worthy investment that pays you back over time. These not only improve your quality of life, but these changes also allow you to maintain a certain lifestyle and standard of living.

By taking into account what type of home improvement projects are tax deductible, you not only increase the value of your home, but you also save money on your taxes.