Tax-Deductible Home Improvements: What You Should Know This Year (2024)

Are home repairs or upgrades tax deductible? If so, what home improvements are tax deductible? These are important questions to ask yourself if you’ve tackled renovations in 2022, or if you’re planning to this year. Let’s dive in a little deeper.

What Is the Difference Between a Tax Deduction and a Credit?

Before writing off home improvements on your taxes, it’s important to know the difference between deductions and credits. Both increase your total tax return, but in different ways.

According to the IRS, tax deductions reduce your total taxable income, while tax credits reduce the amount of money you must pay. In other words, home improvement tax credits are a dollar-for-dollar reduction of taxes and deductions are reduced by how much money you make per year. Most home renovations fall under the deduction umbrella, but there are a few exceptions.

Are Your Home Improvements Tax Deductible?

You can write off several home improvements on your taxes, but not all projects qualify as tax deductible. It ultimately comes down to what kind of remodel you’re completing and whether it’s classified as a repair or an improvement.

Home Repairs: Small Fixes to Maintain Your Property

A repair is any modification that restores a home to its original state and/or value, according to the IRS. Home repairs are not tax deductible, except in the case of home offices and rental properties that you own – more to come on that later in this guide.

“Some examples [of home repairs] include replacing broken window panes, fixing a leaking faucet, fixing a hole in the carpet, replacing broken hardware, or replacing a few broken roof shingles,” shares the team at TaxSlayer.

Home Improvements: Big Projects That Increase Home Value

An improvement is any modification that increases the value of your home. According to TaxSlayer, examples of improvements include adding a new driveway, a new roof, new siding, insulation in the attic, a new septic system or built-in appliances. Home improvements can be tax deductions, but some are only deductible in the year the home is sold.

For instance, if you made a home improvement in 2016 and sold your house in 2022, any deductions you may be eligible for would be recognized on your 2022 tax return. Even if you’re not planning to sell your home in the next year, it’s important to thoroughly document any tax-deductible home improvements you make along the way so you can get the most bang for your buck when the time comes.

5 Home Improvements That Are Tax Deductible

1. Energy-Efficient Renovations

Type of Savings: Tax Credit
When You Can Claim It: Same Year

On a 2022 tax return, homeowners can claim a credit for certain energy-efficient renovations. A tax credit can be applied to 10% of the cost for qualified energy-efficiency improvements, as well as the amount of the energy-related property expenditures paid or incurred during the taxable year (subject to the overall credit limit of $500).

“Tax law changes reduced what qualifies for the Residential Renewable Energy Tax Credit, only leaving improvements for solar energy intact,” shares TaxSlayer. “The new tax law states that credits for wind, geothermal, and fuel cell improvements are only good through tax year 2017. The solar credit will remain until 2019, and then it will be reduced every year through 2021.”

However, putting solar energy systems on new or existing homes can still result in a 30% credit of the total cost of installation. This credit is not limited to your primary residence and is even available for newly constructed homes. Keep in mind that most eligible improvements for energy efficiency can be credited, but not deducted, within the same year.

Energy-Efficient Home Improvements With a Tax Credit:

Installing solar panels
Purchasing solar water heaters
Using small wind turbines
Replacing exterior doors or windows with ones that meet Energy Star program requirements

2. Home Improvements for Medical Care

Type of Savings: Tax Deduction
When You Can Claim It: Same Year

Tax-deductible home improvements related to medical care are often hard to come by. But if you plan on aging in place, these deductions may apply to you in full. You can include expenses for medical equipment installed in your home if its main purpose is to provide care for you, your spouse or a dependent.

The following list of improvements are considered fully-deductible expenses, as these projects are not considered to add value to the home.

Medical Care Home Improvements With a Tax Deduction:

Building entrance and exit ramps
Widening hallways and doorways
Lowering or modifying kitchen cabinets
Adding lifts from one floor to another
Installing support bars in the bathroom
Modifying fire alarms and smoke detectors

Check out the Nolo Network’s guide on medical tax-deductible home improvements for more information.
See Also
Can the IRS Get My Bank Account and Financial Information? The Short Answer: Yes.

3. Home Office Improvements

Type of Savings: Tax Deduction
When You Can Claim It: Same Year

The two basic requirements that qualify office updates for a home improvement tax deduction are regular, exclusive use of the space and that your home is the principal place of your business.

In recent years, home office renovations have seen some of the biggest tax law changes. Tax deductions are no longer available to employees who maintain a working space apart from their employer’s offices. But home office remodels can still be deducted for those who are self-employed or run their own businesses.

The good news is that if you qualify for this tax break, both repairs and improvements can be eligible, as long as they are only in the parts of your home used for business. Home office improvements are deductible over time with depreciation, and repairs are deductible within the tax year they are completed, since they’re considered necessary for the upkeep of your business.

Office Home Improvements With a Tax Deduction:

Repairs made directly to your office space
Improvements made directly to your office space
Repairs made to other parts of the home (partially deductible)
Some improvements made to other parts of the home (partially deductible)

Repairs that directly impact your business space can be deducted in full (e.g., mending a broken window in your office). But if renovations or repairs benefit your entire home (e.g., heating and cooling systems or roof repairs), the deduction is calculated as a percentage. For example, if your office occupies 20% of your home, 20% of the renovation cost is tax-deductible.

4. Rental Property Renovations

Type of Savings: Tax Deduction
When You Can Claim It: Same Year

The rules on repairs vs. improvements for rental properties can get complicated. Repairs are tax deductible, as they are considered necessary to the upkeep of a property. Similar to home offices, rental property repairs can be deducted within the year they are completed. Improvements, such as a bathroom renovation, kitchen remodel, laundry room addition or appliance upgrades add value to your rental property and therefore depreciate over time.

Rental Home Improvements With a Tax Deduction:

Any upkeep necessary to maintain a habitable space for your tenants
Room additions or upgrades to the property (deductible over time, with depreciation)

Are Any Other Home Improvements Tax Deductible for a Rental Property?

“New or used(that meets the acquisition requirement under the new tax act) property that has a useful life less than 20 years can be fully deducted under the bonus depreciation rules. Some leasehold improvements to non-residential real estate can also be fully deducted under these rules.”
Dawn Hryshko | President & Founder of Hryshko & Associates, Cleveland CPA Firm

5. Home Improvements for Resale Value

Type of Savings: Tax Deduction
When You Can Claim It: Year of Sale

Major home improvements, or capital improvements, increase your home’s value. Capital improvements have to last for more than one year and add value to the base cost of your home, prolong its life or adapt it to new uses. Home improvements for resale value can be tax deductible when it comes time to sell your home, so it’s crucial to itemize receipts and keep track of where money was spent, including labor costs.

Resale-Focused Home Improvements With a Tax Deduction:

Building an addition onto your home
Finishing a basem*nt
Finishing an attic
Adding a new bathroom
Installing a new furnace
Adding a swimming pool

Tackle More Home Improvements With a Potential Write-Off

Now you can start making tax-deductible home improvements in 2023. Whether you’re tackling energy-efficient upgrades, updating your home before selling, or just making your home fit your lifestyle better, we have resources to help you complete home improvement projects on your own. Check out these guides for step-by-step tips on renovations:

How to Add Curb Appeal to Your Home
How to Budget for a Home Renovation
The Best Home Upgrades for Return on Investment

As an expert in tax-related matters and home improvements, my extensive knowledge in the field allows me to provide detailed insights into the concepts discussed in the article.

Understanding Tax Deductions and Credits:

Tax Deduction vs. Credit: Before delving into specific home improvements, it's crucial to understand the distinction between tax deductions and credits. Tax deductions reduce taxable income, while tax credits directly reduce the amount of money owed. Both contribute to increasing your overall tax return.

Home Repairs vs. Improvements:

Home Repairs: Repairs involve small fixes to maintain a property, such as fixing broken windows, leaking faucets, or replacing roof shingles. Generally, home repairs are not tax-deductible unless they relate to home offices or rental properties.

Home Improvements: Improvements are substantial modifications that increase a home's value. Examples include adding a new driveway, roof, siding, insulation, or built-in appliances. While most home renovations fall under deductions, some improvements are deductible only in the year the home is sold.

Tax-Deductible Home Improvements:

1. Energy-Efficient Renovations:

Type: Tax Credit
When You Can Claim It: Same Year
Examples: Installing solar panels, purchasing solar water heaters, using small wind turbines, replacing doors/windows meeting Energy Star requirements.
Note: Eligible improvements for energy efficiency can be credited, not deducted, in the same year.

2. Home Improvements for Medical Care:

Type: Tax Deduction
When You Can Claim It: Same Year
Examples: Building ramps, widening hallways, modifying cabinets, adding lifts, installing support bars.
Note: These improvements are fully deductible as they are not considered to add value to the home.

3. Home Office Improvements:

Type: Tax Deduction
When You Can Claim It: Same Year
Requirements: Regular, exclusive use of the space; home is the principal place of business.
Note: Repairs/improvements within the office space are eligible, while repairs benefiting the entire home are partially deductible.

4. Rental Property Renovations:

Type: Tax Deduction
When You Can Claim It: Same Year
Note: Repairs are fully deductible, while improvements add value and depreciate over time.

5. Home Improvements for Resale Value:

Type: Tax Deduction
When You Can Claim It: Year of Sale
Examples: Adding an addition, finishing a basem*nt/attic, new bathroom, furnace, swimming pool.
Note: Capital improvements increase home value and are deductible when selling.

Conclusion:

Understanding the tax implications of home improvements is crucial for maximizing returns. Whether it's energy-efficient upgrades, medical-care-related modifications, home office improvements, rental property renovations, or improvements for resale value, each category has its own rules and considerations. Staying informed and seeking advice from a local tax accountant ensures accurate filing and potential tax savings.