If you're like most homeowners, you probably hate having to pay for things like broken windows, frayed wires, and faulty plumbing. It's only natural, then, that you'd want to know if these expenses are tax-deductible.
Unfortunately, if your home serves purely as a personal residence, then you can not deduct your home repairs. The IRS allows you to write off your home repair costs only if you rent out part of your home or if you qualify for the home office tax deduction.
Note: If you want to track all your tax-deductible home office expenses, try BonsaiTax. Our app could scan your bank/credit card statements to uncover potential tax deductions. In fact, users typically save $5,600 from their tax bill. Try a 14-day free trial here.
Home Improvements VS. Home Repairs
Before you start any renovations on your house or rental property, make sure you're aware of the distinction between a home improvement and a home repair -- the difference will be crucial come tax time.
Repairs bring your home back to its original state. For example, replacing a doorknob in order to fix a faulty lock would be considered a repair.
Repairs are needed maintenance to keep your property habitable and operational. To the IRS, repairs don't add "significant value" to your property and don't prolong its life.
Generally, when you repair your home, you help return it to its previous good condition -- therefore, your newly-repaired home can not be considered improved upon.
Also, note that when you replace a broken appliance, the IRS considers this a repair rather than a replacement.
That said, home repairs can include:
- Repainting a wall
- Repairing a roof
- Replacing a window
- Fixing a broken drain pipe
- Replacing a doorknob or lockset
- Repairing plumbing
In contrast, home improvements add value to your property and prolong the useful life of your home. Installing a new water heater, for example, would be considered an improvement.
Generally, when you improve your home, you help increase its resale value, and you can deduct the costs of these improvements. There's a catch, though. You can only claim these tax deductions the year you sell your home.
Home Improvements Tax Deductible Expenses
Here are some examples of tax-deductible home improvements:
- Adding an extra bedroom to your house
- Converting a garage into a family room or playroom
- Putting up a fence around your backyard or pool
- Adding central heating and air conditioning systems to a previously-unconditioned home
- Installing solar panels
- Installing energy-efficient equipment to get a tax credit
You can track these expenses using our home office expense worksheet.
Now that you understand the difference between a capital improvement and a home repair, let's look at the circumstances in which you can claim a deduction for home repairs. As we've mentioned earlier, you can only claim home repair tax deductions if you:
- Qualify for the home-office deduction
- Rent out part of your home
If You Can Claim The Home Office Deduction
The home office deduction allows homeowners to get reimbursed for their home office and reduce their taxable income by deducting expenses related to the part of the house they use exclusively for business. These types of expenses can include mortgage interest, property taxes, insurance premiums, repairs, etc.
The tax deduction is available to both homeowners and renters, and it may be claimed for any home in which you reside: a single-family house, an apartment, a condo, or a houseboat. It can't be used for a hotel or other short-term accommodation.
To claim the deduction, you need to either be self-employed, a gig worker, a freelancer, or an independent contractor. Unfortunately, the deduction isn't available for workers who receive W-2s from their employers every tax season. Even W-2 employees who work from home aren't eligible for this deduction. Make sure you qualify because you don't want to risk a home office audit.
That said, to qualify for the home office deduction, your home must meet certain requirements, which include:
The “exclusive and regular use” requirement
This requirement states that the home office must be used solely for business purposes. If part of your home office is also used as a residence, even occasionally, you can't claim this deduction.
For instance, let's say you set aside one room in your home for your freelance writing business. If you allow your children to use the room to complete their school assignments, then you likely won't qualify for the home office deduction.
The “principal place of business” requirement
Th principal place of business requirement states that your home office has to be the place where you engage in your business activities regularly and full-time. This is where you manage your business, meet clients and customers, deal with finances, conduct research, or perform any other business duties.
You can't claim a home office deduction if your home office is merely a place where you keep books and records.
With that said, if you make any repairs exclusively to your home office -- rather than your entire home -- you can write off 100% of the cost you incurred. For instance, let's say you use one of your rooms as a home office. You have a broken window and you need it replaced. The money you'll use to replace this window is 100% deductible when you file your returns.
In contrast, any repairs to your entire home aren't 100% deductible -- the percentage of costs you'll deduct depends on the percentage of home-office use. Let's say you use 30% of your home for business purposes. If you decide to repaint your entire home, then you'll deduct only 30% of the costs you incurred.
Home improvements are tax deductible, too. Similarly to home repairs, home improvements need to be made only on the parts of your home that you use for business.
The difference, however, is that you need to deduct home improvements over time with depreciation. The IRS allows you to deduct home repairs within the year they're made, as they consider repairs necessary for the upkeep of your business. Home improvements, on the other hand, are considered capital improvements as they add value to your home over time, so you may have to depreciate the expenses you incur over a period of years.
For instance, let's say you incur a $1,000 roofing expense this year. If you classify this $1,000 as a home repair, you can deduct the $1,000 this tax season. If you classify it as a home improvement, you may have to depreciate it over a period of 27.5 years, and you might only claim a $35 write-off this year. But on the bright side, you may earn a tax break when you eventually sell the home.
Read more on limitations for the home office deduction here.
If You Rent Out Part Of Your Home
If you rent out one of the rooms in your home, the IRS requires you to report this income and allows you to deduct expenses related to the rented room only. The tax rules you have to follow are similar to the ones landlords have to adhere to when they rent out entire properties.
When renting out part of your home, you need to divide certain expenses between the portion of the property that is used for business and the portion of the property that is used for personal reasons, as though you had two separate properties.
If you use the money exclusively on the rental part of your home, then you don't have to divide the expenses -- you can deduct the entire amount. For instance, let's say you're renting out one of your spare rooms for $1,000 per month. If you pay $500 per month in tax-deductible costs -- such as mortgage interest or repairs -- then you can deduct the entire cost of $500 from your rental income.
On the other hand, if you used any money for repairs that benefit the entire property -- such as a new roof or plumbing repairs -- then you have to divide these expenses between the business and personal portions of your home. Let's say that 5% of your home was used for business purposes throughout the year, and during that time, you incurred $1,000 in tax-deductible costs related to the entire property. You'd then be able to deduct only $50 of your expenses from your tax bill.
Bottom Line For Home Repair Tax Deductions
Home repairs are often overlooked as potential tax deductions. The truth is that many home repairs are actually deductible and offer tax benefits, as long as you meet the conditions we've explained above. If you need to repair your roof, fix your air conditioner, or replace the plumbing in your kitchen, these repair costs may be deductible to you come tax time.
What kind of home repairs are tax deductible? ›
- Energy-Efficient Home Improvements. ...
- Home Improvements Related to Medical Care. ...
- Home Improvements that Increase Resale Value. ...
- Improvements to Your Office If You Have a Home Business.
When you make a home improvement, such as installing central air conditioning or replacing the roof, you can't deduct the cost in the year you spend the money. But, if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house.What does the IRS consider home improvements? ›
The IRS says improvements that qualify to be added to your basis are ones that "add to the value of your home, prolong its useful life, or adapt it to new uses," including interior and exterior modifications, heating and plumbing systems, landscaping, and insulation.What repairs are allowable deductions? ›
- Fix a defect that existed before you bought the property.
- Fix a defect that happened while the property was being made or built.
- Enlarge or expand the property so that it has more capacity.
- Increase the property's quality, strength, efficiency, or productivity.
Non-Business Energy Tax Credit.
This tax credit can be claimed for any eligible home improvements you made in 2022. The credit covers 10% of the cost of the equipment, including items such as home insulation, exterior doors, electric heat pumps, and central air conditioning systems.
Beginning 2023, the expanded version of 25C, now called the Energy Efficient Home Improvement Tax Credit (under the Inflation Reduction Act of 2022) will provide up to $2,000 in tax credits for qualifying high efficiency water heaters as well as credits for electrical upgrades.Is carpet replacement a repair or improvement? ›
It's well settled that replacing an entire carpet in a rental property is an improvement, not a repair. In contrast, mending a hole in a carpet is a currently deductible repair. Unless one of the exceptions described below applies, you'll have to depreciate the cost of the carpet over the property's useful life.Is bathroom remodeling tax deductible? ›
But with that, you might be wondering: Is a bath remodel tax deductible? The short answer is no, as most remodeling projects completed at your personal residence can't be written off.What happens if you don't have receipts for capital improvements? ›
What should I do? ANSWER: If you are audited by the IRS on the sale of your principal residence but you can't produce the receipts for capital improvements, the IRS auditor is authorized to accept reasonable cost estimates. Of course, the receipts are your best evidence of your renovation expenses.What qualifies as repairs and maintenance? ›
The costs incurred to bring an asset back to an earlier condition or to keep the asset operating at its present condition (as opposed to improving the asset).
What is the difference between repairs and improvements? ›
Here's a rule of thumb: An improvement is work that prolongs the life of the property, enhances its value or adapts it to a different use. On the other hand, a repair merely keeps property in efficient operating condition.Is window replacement a repair or improvement? ›
Windows are considered capital improvements because they are part of the overall building structure.How can I write off my electric bill on my taxes? ›
You can write off a percentage of your electricity bill that is equal to the percentage of space that your office occupies in your home. For example, if your home office occupies 20% of the space (square footage) in your home, then 20% of your electricity bill can be used as a tax deduction.Is a new HVAC system tax deductible 2023? ›
Tax Section 25C, Nonbusiness Energy Property Credit
Effective Jan 1, 2023: Provides a tax credit to homeowners equal to 30% of installation costs for the highest efficiency tier products, up to a maximum of $600 for qualified air conditioners and furnaces, and a maximum of $2,000 for qualified heat pumps.
All ENERGY STAR certified packaged systems are eligible. Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”Are HVAC upgrades tax deductible? ›
Private residential home improvements are considered nondeductible personal expenses by the IRS – meaning your HVAC replacement isn't tax deductible. However, new AC installation is considered a home improvement that increases your home's basis.Is bottled water a tax write off? ›
With the right prescription, even bottled water can be deductible. In fact, one very wealthy client managed to deduct $1,095 worth of Evian water as a medical expense on her taxes.Is water damage tax deductible? ›
Generally, you can only deduct water damage or any other casualty loss in the year in which it occurred, but there are scenarios in which delays are allowed by the IRS. The concept of the casualty loss deduction is to protect taxpayers from sudden property losses. This protection is limited to actual losses.Is a new toilet a capital improvement? ›
If you modernize your kitchen, revamp the bathroom, or put in new carpet wall-to-wall, the IRS will likely classify those expenses as capital improvements. The same applies if you redo your pipes and ductwork, put in gorgeous new hardwood, or beautify your curb appeal with landscaping.Is painting considered a capital improvement? ›
By itself, the cost of painting the exterior of a building is generally a currently deductible repair expense because merely painting isn't an improvement under the capitalization rules.
Can you claim new carpet on taxes? ›
If the carpeting is in a room used 100% for your business, deduct 100% of the cost. If the carpeting is in a room used by your business and your family, deduct your Time-Space Percentage of the cost. These rules apply whether you are replacing carpeting in one room or every room in your home.What is the 2023 home improvement tax credit? ›
Beginning January 1, 2023, the credit becomes equal to the lesser of 30% of the sum of amounts paid for qualifying home improvements or the annual $1,200 credit limit. In addition the the aggregate $1,200 limit, annual dollar credit limits apply to specific items including: Home energy audits: $150.Can you write off kitchen remodel your taxes? ›
Yes, kitchen upgrades are generally considered to be capital improvements under the IRS's guidelines. In fact, new kitchens, new kitchen appliances and new flooring can all qualify.What is the federal home renovation tax credit? ›
Home Renovation Tax Credit [Active]
Eligible expenses include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits. Additionally, the $2,100 is split between the two years, meaning a maximum of $1,155 for 2021 and $945 for 2022.
Proving Your Property's Tax Basis to the IRS
Improvements should be documented with purchase orders, receipts, cancelled checks, and any other documentation you receive. The records homeowners most often lose are those for improvements, so take special care to keep track of these.
Review bank statements and credit card statements. They are usually a good list of what you paid. They may also be a good substitute if you don't have a receipt. Vendors and suppliers may have duplicate records.Does the IRS look at your bank account during an audit? ›
The Short Answer: Yes. The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.What are the 4 types of maintenance? ›
- Corrective maintenance.
- Preventive maintenance.
- Risk-based maintenance.
- Condition-based maintenance.
A repair is essentially maintenance that brings an asset back to working condition but doesn't improve on its condition beyond the quality or usefulness that existed before the work was done.Is replacement of roof a capital or expense? ›
A new roof on the property qualifies as an improvement, restoration, or betterment of the property, meaning it is a capital improvement. The new roof is also treated as a separate asset from the existing structure of the property, which means you can depreciate it over its useful life of 27.5 years.
Is painting considered maintenance or a capital expense? ›
The Bottom Line. Painting a rental property is generally considered a repair expense much like replacing a damaged door, leaky faucet, or broken window. However, if new paint is part of large-scale improvements to the residence, it likely will qualify as a capital expense.Is door replacement a capital expense? ›
For example, if you replaced a steel door with a wooden door because steel doors were not available, you could classify the expense as a repair rather than a capital improvement. You must capitalize and depreciate expenses related to adapting a UOP to a new or different use.Is flooring considered qualified improvement property? ›
Examples include the installation or replacement of drywall, interior doors, lighting, flooring, ceilings, fire protection, and plumbing. Any enlargement of the building, any elevator or escalator, and any internal structural framework do not meet the requirements of qualified improvement property.Can you claim windows on your taxes? ›
How much can I claim for new windows, doors and/or skylights on my tax return? You could be eligible for an energy-efficient home improvement tax credit of up to 10% of the cost (not including installation), up to $500 for doors and skylights. There is a $200 cap on windows.Do you capitalize roof repairs? ›
Because it performs a discrete and central function, it comprises a major component and a substantial structural part of the building. Accordingly, under either analysis, the company must treat the amount paid to replace the roof as a restoration of the building that must be capitalized.Is painting tax deductible? ›
Unfortunately, house painting doesn't have any tax benefits for properties. Specifically houses that lack capital gains or have any means of rental income from the rental market. Much like home repairs, house painting is not tax-deductible. This is because it is considered a personal expense versus capital expenditure.What is considered an improvement to a house? ›
A capital improvement is a permanent structural alteration or repair to a property that improves it substantially, thereby increasing its overall value. That may come with updating the property to suit new needs or extending its life. However, basic maintenance and repair are not considered capital improvements.What improvement property qualifies? ›
Last Updated October 11, 2022. Qualified improvement property is an improvement made by the taxpayer to an interior portion of a nonresidential building if the improvement is placed in service after the building was first placed in service.What items are considered capital improvements? ›
- additions, such as a deck, pool, additional room, etc.
- renovating an entire room (for example, kitchen)
- installing central air conditioning, a new plumbing system, etc.
- replacing 30% or more of a building component (for example, roof, windows, floors, electrical system, HVAC, etc.)
Here's a rule of thumb: An improvement is work that prolongs the life of the property, enhances its value or adapts it to a different use. On the other hand, a repair merely keeps property in efficient operating condition. Let's take a quick look at a few examples.
Is painting considered qualified improvement property? ›
By itself, the cost of painting the exterior of a building is generally a currently deductible repair expense because merely painting isn't an improvement under the capitalization rules.Is a water heater qualified improvement property? ›
Water heater replacement by itself would not be considered an improvement. It would be depreciated as an Asset unless you made the election to write it off as an expense.Is a roof considered qualified improvement property? ›
Roofs do qualify. Qualified improvement property, which means any improvement to a building's interior.Is new flooring considered a capital improvement? ›
Capital improvements vs. routine repairs.
|Improvement||Does it qualify for a deduction?|
|Replacing flooring you installed||No|
An expenditure will normally be considered a capital expenditure if it is determined that it has an endurable benefit. For example, the changing of a roof of a building, or the re-bricking of a building are examples of expenditures that would be capital in nature due to their enduring benefit.What are the 2023 tax credits for home improvements? ›
Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures during the year, and (3) home energy audits ...