Are home improvements tax deductible? What improvements are tax deductible? If you’ve recently renovated your home, it’s the time of year to start asking these questions. And it’s the time of year we provide some answers. First, let’s get to the most pressing question.
Are home improvements tax deductible?
Yes, but the answer to this question can be convoluted. It comes down to what kind of project you’re completing, whether it’s classified as an improvement or repair and whether or not you can properly keep track of your work. To help out, we’ll break it down into the five most common tax deductible home improvements and repairs. This will give you insight into each specific project and situation where you could potentially save yourself some dollar bills.
Tax Deductible Home Improvements
1. Energy-Efficient Renovations
While the list of energy-efficient tax credits in 2016 spans beyond those of 2017, there are still opportunities to save yourself some money. Installing solar energy systems on new or existing homes can result in a 30% deduction of the total cost. This applies to both solar-electric properties (where panels power your home) and solar water-heating systems. These incentives are available at the 30% rate until 2019 and won’t expire until 2021. Second/rental homes also apply.
2. Home Improvements for Medical Care
Tax deductible home improvements for medical care can be hard to come by. While the bar is set high, if your costs are sizeable and the improvements are deemed necessary, these deductions may apply to you. In short, 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.
Here are a few of the most common home improvements for medical care that are tax deductible:
- Building entrance and exit ramps.
- Widening hallways and doorways.
- Lowering/modifying cabinets in a kitchen.
- Adding lifts to get from one floor to another.
- Installing support bars in a bathroom.
3. Home Office Improvements
Whether you run a business or are self-employed, home office renovations can be deducted as business expenses. Deductions must apply only to parts of your home being used for business. If renovations benefit your entire home (e.g. heating and cooling systems), the deduction is calculated as a percentage. This makes it critical to know the square footage of your home office and your entire home. For example, if your office occupies 20 percent of your home, 20 percent of the renovation cost is tax deductible.
Can you do your job or run your business within the comfort of your own home? Check out our guide on How to Build a Home Office if you’re looking to get a sizeable tax deduction next year.
4. Rental Property Renovations
Rental property renovations can be complicated and a lot of it comes down to wording. In this case, it’s repairs versus improvements. Repairs are classified as necessary to the upkeep of a property and can be deducted in many cases. Improvements, such as renovating a kitchen, depreciate over time. In short, this means the costs are deducted in occurrence with the depreciation of your home.
The Real Estate CPA™ provides more clarity on the difference between repairs and improvements:
“If a roof is leaking, repair the shingles where the leak is taking place. You don’t have to replace the entire roof. While many investors prefer to replace it to avoid future hassles, they fail to realize a $500 deductible repair is advantageous. Especially when the alternative is recovering costs over years.”
Blake Lessard | The Real Estate CPA™
To save yourself money in this or future tax seasons, read more of Are Home Improvements Tax Deductible? to get specific examples of tax deductible home improvements and repairs.
5. Improvements for Resale Value
Capital improvements increase your home’s value. These improvements can be tax deductible when it comes time to sell your home. That’s why it’s critical to itemize and keep track of where money was spent. Here are some common home improvement projects for resale value that can be deductible:
- A new addition onto your home.
- Finishing a basement or attic.
- Creating a new bathroom.
- Installing a new furnace.
Find out more about adding capital improvements expenses to the base cost of your home.
Tax Deductible Home Improvements the DIY Way
Whether you’re creating a home office, renovating your rental property or completing a variety of home improvement projects, earn those tax deductions the DIY way. We’ve created The Exceedingly Comprehensive Guide to DIY Home Improvement to help even the most novice homeowner improve their home. From making general repairs to completely remodeling your home, rely on this guide to help you through all phases of a project.
Do you have a home improvement project you’d like to share? We’d love to hear from you. Drop a comment below!