Planning a home remodel or upgrade? Beyond boosting your home’s comfort and resale value, some improvements may offer tax benefits—if you follow the right guidelines. Whether you’re sprucing up your property for future sale or investing in long-term upgrades, it’s important to understand how home improvements can affect your taxes.
Repairs vs. Improvements: Know the Difference
While many homeowners make upgrades, it’s important to distinguish between repairs and capital improvements. Repairs like fixing a leak, updating faucets, or replacing broken windows typically don’t qualify for tax benefits, even if they are costly or extensive. These are considered maintenance costs and do not count as capital improvements unless they are linked to something like a home office or rental property.
What Qualifies as a Capital Improvement?
Not all projects qualify, but the IRS generally considers an improvement a capital improvement if it:
- Adds lasting value to the property and is permanent
- Adapts the home for new uses (turning an attic into a bedroom or a basement into a rental suite)
- Extends the home’s useful life (replacing the roof or installing new plumbing)
Common examples include new roofs, room additions, HVAC replacements, and major renovations. These improvements aren’t deductible now, but they may reduce your taxable capital gains when you sell—so keep all documentation, including receipts, plans, and contractor invoices. These records will be essential for maximizing your benefits, and necessary for your tax advisor.
Other Tax Perks to Explore
Even if your project isn’t a capital improvement, it may still qualify for other tax advantages that could save you money in the long run:
- Home Office Deduction – If you use part of your home exclusively for business, repairs or improvements made to that space may be deductible. This can include things like new paint, upgraded wiring, or even new furniture.
- Medical-Related Upgrades – If you make changes for medical reasons—like installing ramps, handrails, or other accessibility features—those improvements may qualify as deductible medical expenses.
- Energy-Efficient Upgrades – The federal government encourages energy-saving upgrades with tax credits:
- Energy Efficient Home Improvement Credit: You may be able to claim 30% of qualifying costs (up to $3,200) for insulation, windows, roofing, and more.
- Residential Clean Energy Credit: If you install clean energy systems like solar panels or geothermal heating, you may be able to claim up to 30% of the cost.
- Energy Efficient Home Improvement Credit: You may be able to claim 30% of qualifying costs (up to $3,200) for insulation, windows, roofing, and more.
- Loan Interest Deductions – Some home improvement loans may allow you to deduct the interest you pay on the loan from your taxes.
Remember, tax laws change often and without much notice. Make sure you’re up to date with the latest rules by consulting a tax advisor before making any major improvements or upgrades. An expert can help you navigate available credits and deductions, ensuring you’re getting the most out of your home improvement investment.