Are Home Improvements Tax Deductible?

23, February, 2024

Homeowners are responsible for keeping their properties up-to-date. From time to time, that responsibility calls for making improvements. The IRS encourages homeowners to do so by providing the opportunity for tax deductions on certain types of improvements.

While some home improvements qualify for tax deductions, others are eligible for tax credits. We’ll highlight the differences between the two tax structures below. But first, let’s look at some home improvements that potentially qualify for a tax deduction in 2024.

What Home Improvements Are Tax-Deductible in 2024?

In the most general sense, a tax-deductible home improvement is a major renovation that adds value to your home.

These projects involve making a permanent enhancement, upgrade, or modernization that drives up the property’s cost basis and market value, which is why they’re called “capital improvements.” If you eventually sell your home, such renovations can raise profits from the sale.

It’s always best to check with a professional financial advisor to know for sure what home improvements are tax-deductible. That said, here are four major categories of capital renovations that are likely to qualify for tax breaks in 2024.

Home Office Deduction

Even before working from home became commonplace, many entrepreneurs, IT pros, artists, and other professionals operated businesses out of home offices. To get your office into full working order, you may have to make improvements or adjustments. Many of these improvements may be tax-deductible.

To qualify for a home office deduction, your living space must meet two criteria:

  • It must be your primary place of business, not just a “satellite” office
  • It must have an area dedicated entirely to running the business

Some upgrade expenses that qualify for a home office deduction include:

  • Insurance
  • Interest on mortgage
  • Utilities
  • Repairs
  • Rent
  • Depreciation
  • Maintenance
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It’s a good idea to verify with your tax counselor that these expenses are eligible for tax deductions and find out whether there are others that may be appropriate for you.

Energy-Efficient Home Improvements

Improvements to your home’s energy efficiency are usually eligible for tax credits, meaning your tax bill will be lower rather than your taxable income.

Typically, tax credits yield more savings than deductions. Homeowners therefore have more incentive to invest in energy-efficient equipment and retrofit their homes. The credit a homeowner receives reflects a percentage of the cost of a “qualified property.”

Some of the energy-efficient home improvement projects that may qualify for tax credits include:

  • Solar panel or water heater installation
  • Small wind turbines
  • Energy-efficient windows, doors, and insulation
  • Electric vehicle charging stations
  • Energy-efficient HVAC systems
  • Biomass stoves using plant-derived fuel
  • Geothermal heat pumps

Your financial advisor should be aware of more home improvements that fall under this category.

Home Improvements for Medical Care

The IRS allows deductions on renovations made to accommodate those with special medical needs. Per Section 213 of the Internal Revenue Code, such improvements must “alleviate or prevent a physical or mental disability or illness” — they exclude expenses that only improve general health.

Some of the improvements that may be deducted as medical expenses include:

  • Ramps or handrails
  • Bathroom grab bars
  • Modified doorways for wheelchairs or walkers
  • Lower cabinets and countertops
  • Therapeutic swimming pools
  • Alert lights and alarms

Note that if an improvement not only improves accessibility but also results in a permanent increase in your home and property value, it may qualify for a tax deduction.

Rental Property Maintenance Deduction

Some homeowners choose to rent out parts of their homes to outside parties. If you’re considering doing this, you might receive a tax break by writing off portions of your cost basis via depreciation for every year you rent out your home. These repairs are especially tax-deductible if they’re necessary to keep the property in good condition.

To qualify for the depreciation break, the improvements must only be made to the rented portion of your property. If, by chance, they end up improving the entire home, the value can be depreciated corresponding to the percentage of the home that’s rented out.

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What Kinds of Improvements Are Not Tax-Deductible?

Some home renovations that are usually ineligible for tax breaks include:

  • Routine repairs on roofs, windows, or plumbing
  • Painting and wallpapering
  • New carpet installation
  • Furniture and decorations
  • Flooring installations not made for energy efficiency
  • Appliance repair and replacement
  • Home security system installation

Allowed deductions can vary according to your area and the relevant tax years. Check with your advisor to learn more about which projects will affect your tax liability.

Tax Deduction vs. Tax Credit

The differences between tax-deductible improvements and those eligible for tax credits come down to the scope of the work and the value the improvements add. Tax deductions, which reduce your overall taxable income and exposure, are generally reserved for home improvements that permanently increase your property value.

By contrast, expenses that qualify for tax credits are usually related to keeping your home up-to-date, especially in terms of energy efficiency. These can include solar panels, insulation, and HVAC installation or upgrades. Consult a professional to learn more about tax credit limits and allowances.

What Are Capital Improvements?

Capital improvements are those that permanently upgrade homes and result in an uptick in their value. Since they’re tax-deductible and not just discounted credits, you’ll be subject to capital gains taxes if you decide to sell.

According to the IRS, capital improvements must meet the following conditions to qualify for deductions:

  • They’re permanent
  • They substantially increase your property value
  • They extend the useful life of your home and property

Make it a point to keep meticulous records related to your home’s capital improvements, as they’ll be crucial come tax season.

Capital Improvements vs. Repairs

Home repairs differ from capital improvements in that they only address immediate maintenance needs and restore structures and fixtures to working order. They don’t increase the home’s value in and of themselves — they simply maintain the original condition of the home and its contents.

Learn More About Home Improvements and Taxes

Are you struggling to make sense of which home improvements can benefit both your home and your tax status? You aren’t alone. To learn more about how these arrangements work — and how you can structure them to your best tax advantage — talk to a qualified financial expert who specializes in home improvement taxes.

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