Tax credits reduce your tax bill on a dollar-for-dollar basis. However, deductions are what lower your taxable income. The good news is that some home improvements can make your living space better and reap you benefits on your taxes too. There are multiple tax deductible home improvements you can undertake. That new bedroom might just increase your refund. In this article, we’ll show you what kinds of home improvements you can deduct from your taxes. We’ll even show how this can apply to rental properties. Who knows, getting more money back from the IRS could even be the start of your next home improvement project. So, can you write off your home improvements this year? Read on to find out.
Home Improvements vs. Repairs: Know the Difference
Before you start any work on your home or rental property, be sure you’re clear on the difference between a home improvement and a home repair. This distinction will be critical come tax time. The last thing you want is to end up in hot water with the IRS because you tried to pass off a repair as an improvement on your tax return.
Let’s go over a quick description of both a repair and an improvement. Once you understand the difference between the two (which is actually fairly obvious when you think about it), you’ll know how to proceed at tax time.
According to the IRS, a capital improvement is any upgrade or modification that “substantially adds value to your house, prolongs the life of your home or adapts it to new uses.” Increasing the number of bedrooms and/or bathrooms in your home would be an improvement, for example. So would installing energy-efficient outdoor lighting.
Other common examples of home improvements are a new roof, new driveway, a new septic system, or brand new appliances. These expenses would be tax deductible or tax credits, depending on the improvements undertaken. Some home improvements are only tax deductible in the year the house is sold, so make sure you keep all receipts and documentation.
The IRS defines a repair as “any modification that restores a home to its original state and/or value.” For example, repairing and/or replacing window screens don’t necessarily add value to the house. Instead, you are merely restoring the original condition of the property. More mundane fixes, like repairing a leaky faucet or replacing a few broken roof shingles, are also merely repairs.
In general, home repairs are not tax deductible. However, there are a few exceptions. Repairs made after a natural disaster, repairs to a rental property, and repairs to a home office may also qualify for tax deductions. We’ll discuss these more in a minute.
When to Claim Home Improvement Deductions on Your Taxes
You can — and should — claim tax deductions in the year your home improvements were done. However, some improvements must be claimed over a few years’ time. Some can only be claimed if you sell the property. For instance, any energy-efficient upgrades you made should be claimed for the energy efficiency tax credit within the same year. That goes for any improvements you make to your rental property or home office.
For projects such as a new roof, the deductions can be taken out over several years through something called accelerated depreciation, or MACRS (modified accelerated cost recovery system). The IRS has a detailed page about it here, or you can ask your local tax professional how to make it work on your own tax return.
Types of Home Improvement Deductions
Here are some specific types of home improvement deductions you can make, depending on what changes you make to your home:
6. Energy-Efficient Improvements
There are a variety of upgrades you can make to your home that improve your energy use. Examples include geothermal heat pumps, solar-powered water heaters that heat at least half of the home’s water, and double- or triple-paned energy-efficient windows. Many newer homes may have these types of improvements already.
This is typically a tax credit you might take on an older house that needs some updating. Note that you can claim tax credit on energy-efficiency improvements you do to your rental property as well.
5. Improvements to Your Home Office
A home office is defined as a space you use exclusively for business purposes on a regular basis. According to BudgetDumpster, “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.”
Typical improvements include new paint, lighting, or flooring. If the pandemic saw you transition to working from home on a more regular (or even permanent) basis, this could be a great choice for you.
4. Rental Property Improvements
Unlike with your primary residence, improvements to rental properties “don’t even need to be upgrades that add substantial value to the property.” Repairs could include projects like fixing damaged cabinets, cracked tiles, faulty appliances, or even the air conditioning.
It’s common to do these minor repairs whenever a tenant moves out. These types of improvements should be claimed in the same year they were completed. However, redoing a kitchen or bathroom will add value to your property for many years to come. That means you can’t deduct the entire cost in a single year.
3. Improvements Based on Medical Care
Customizing your home to fit your medical needs can be quite expensive. However, you do have the opportunity to deduct some of the cost from your taxes. This comes in handy if someone in your house has any sort of accessibility needs that require modifications or upgrades to your home.
In fact, in addition to the cost of making these improvements, you can also deduct any expenses you have to operate and maintain those medically necessary additions. Shower handrails, wheelchair ramps, wider doors and hallways, and any other improvements made for medical purposes are tax deductible.
2. Improvements For Resale Value
Any improvements made to your house that increase the resale value are tax deductible, but not only in the year they’re made. This is because they benefit the property over time by adding lasting value. Examples of this type of improvement include permanent additions, installing a security system, adding in a swimming pool, or major landscaping. You may need to spread out these deductions over a few years.
You may deduct these over time through the use of MACRS depreciation. Depending on the improvement made, you will need to follow a specific, relevant depreciation schedule to deduct these expenses over their expected useful lifetime. Typically, these will be deducted in under seven years but can vary depending on the type of improvement. Consult the IRS tax guidelines to learn exactly what you need to do to claim these depreciation deductions and lower your taxable income accordingly.
1. Casualty and Theft Improvements/Repairs
This one gets a bit tricky. In order to claim a tax deduction on repairs necessary due to a natural catastrophe, “the disaster needs to be a ‘federally declared disaster’ by the President of the United States.” So simply replacing roof shingles after a night of high winds won’t qualify, but a federally recognized tornado disaster would.
You won’t even really get a tax deduction, per se. It’s more of a break on the damage or losses, which will be helpful when budgeting for repairs. You will have to itemize your deductions. If your insurance company reimburses you, however, you won’t be eligible for the deduction.
Make the Most of Your Remodel
We recommend speaking with a tax professional in your area before starting any home renovations. It’s much easier to be prepared ahead of time. Specifically, it’s better to keep track of your expenses as you incur them, rather than to have to think back at tax time. You don’t want to be tracking down receipts that might be long gone.
Another professional you might consider consulting is a realtor. Even if you’re not thinking of selling your home, it’s a good idea to see what other houses comparable to your own property have in terms of upgrades. You might find inspiration in what has been done to these properties. Or you might find out what to avoid when completing your own improvement project.
Most Common Improvements
The most common improvements to make include updating kitchen cabinets, adding rooms or bathrooms, and replacing doors and windows. According to TaxAct, “for a mid-range kitchen remodel, you’ll recoup about 57 percent of the cost. For a mid-range bath remodel, you’ll recoup about 70 percent of the cost.” A realtor will know what upgrades will garner you the most profit when it does come time to sell your home. They can advise you where your money will be best spent.
You should also know that opting for tax deductions will likely require you to itemize your deductions. Claiming the deductions you’re eligible for is only worth the effort if all of your itemized deductions exceed the IRS standard deduction. That number is $12,550 for the 2021 tax year for individuals, and twice that for married couples. Keep that in mind as you tally up your expenses and prepare your taxes.
Improve Your Home, Increase Your Tax Return
Renovating your home can be a huge task. When you do, it’s always good to know that you can deduct some of the cost. Just make sure to research your particular improvements ahead of time. And make sure you keep all your receipts. If the whole thing seems confusing to you, it’s never a bad idea to consult a professional. A licensed accountant or tax professional will be able to properly guide you on your home improvement journey.In no time at all, you’ll be well on your way to both upgrading your home and enjoying the financial benefits, too.
What home improvements are tax-deductible in 2022? ›
In general, home improvements aren't tax-deductible, but there are three main exceptions: capital improvements, energy-efficient improvements, and improvements related to medical care.Is there a tax credit for replacing windows in 2022? ›
2022 Window & Door Tax Credit. You may be entitled to a tax credit of up to $500*** if you installed energy-efficient windows, skylights, doors or other qualifying items in 2022**. Current federal tax credits for certain energy-efficient improvements to existing homes have been extended through December 31, 2022.What is the energy credit for 2022? ›
Through December 31, 2022, the energy efficient home improvement credit is a $500 lifetime credit. As amended by the IRA, the energy efficient home improvement credit is increased for years after 2022, with an annual credit of generally up to $1,200.Can I deduct a new roof on my taxes? ›
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.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.Can you claim new windows and doors 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.Is a new HVAC system tax deductible 2022? ›
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.
Yes, home improvements such as new replacement windows are a popular way for taxpayers to claim a tax credit and upgrade their homes in the process. For new windows, it's possible to get a tax deduction. The current tax credits for home improvements are expected to remain in their current form until 2032.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.
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.
Is a new HVAC system tax deductible? ›
But how do you go about it? The great news is you can claim it when you file your income taxes in 2021, so now is the time to act! The best part? For qualified HVAC improvements, homeowners might be able to claim 25c tax credits equal to 10% of the install costs (up to a maximum of $500).What is the roofing tax credit for 2022? ›
The $500 credit has a lifetime cap. To use it this year on an approved metal roof, the homeowner cannot have used it in the past on new windows, doors, insulation or other Energy Star certified products. The roof must be installed by the end of 2022.Will everyone get the 400 energy rebate? ›
Every household in England, Scotland and Wales that is connected to the electricity grid will be eligible for the grant, which is expected to cover around 28 million homes.Are Energy Star appliances deductible 2022? ›
The federal tax credits for energy efficiency were extended as part of the Inflation Reduction Act (IRA) of 2022. So, if you made any qualifying home improvements to your primary residence after December 31, 2021, you may be eligible to claim them on your taxes when you file for 2022.Is a roof repair an expense or capital improvement? ›
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.How much tax credit do I need for a house renovation? ›
The credit amounts to 10.5% of the costs incurred. 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.What qualifies as capital improvements? ›
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.Is bathroom renovation 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 qualifies as home improvement for cost basis? ›
As a rule of thumb, an improvement is anything attached to the house that would be left behind in a sale. The IRS and the tax code specify that an improvement is an item that adds to the value of your home, prolongs its useful life or adapts it to new uses.Can I write off finishing my basement? ›
You can only claim it during the tax year you sell the property. Home improvements that can increase resale value and are eligible for tax breaks include: Building an addition. Finishing a basement or attic.
What is the 2023 window and door tax credit? ›
Beginning January 1, 2023, there will be a federal tax credit for exterior windows and doors. The Energy Efficient Home Improvement Credit is worth 30% of the total cost of the project, up to $600 for exterior windows and skylights, $250 for a single exterior door, and $500 for all exterior doors.What energy-efficient improvements are tax deductible? ›
Qualified energy efficiency improvements include the following qualifying products: Energy-efficient exterior windows, doors and skylights. Roofs (metal and asphalt) and roof products. Insulation.What is the Inflation Reduction Act of 2022 HVAC system? ›
The Inflation Reduction Act of 2022 provides tax credits and point-of-sale rebates that can equal thousands of dollars for the installation of high-efficiency HVAC equipment. The Inflation Reduction Act Incentives provides tax credits for homeowners replacing aging equipment with high-efficiency HVAC systems!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.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).Is a new roof tax deductible in 2023? ›
Can I deduct the cost of a new roof? Unfortunately, you cannot deduct the cost of a new roof. Installing a new roof is considered a home improvement and home improvement costs are not deductible.How do you write off home improvements? ›
Home improvements on a personal residence are generally not tax deductible for federal income taxes. However, installing energy efficient equipment may qualify you for a tax credit, and renovations for medical purposes may qualify as tax deductible.What are the tax changes for 2023? ›
For married couples filing jointly, the standard deduction is $27,700 for 2023, up from $25,900 in the 2022 tax year. That's an increase of $1,800, or a 7% bump. For single taxpayers and married individuals filing separately, the standard deduction is set at $13,850 in 2023, compared with $12,950 last year.What air conditioning units qualify for the tax credit? ›
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.”
What appliances qualify for Inflation Reduction Act? ›
Heat pumps, heat pump water heaters, electric stoves, electric cooktops, electric ranges, electric ovens, and electric heat pump clothes dryers are all eligible for rebates, which vary in amount depending on the product.Is installing a heat pump tax deductible? ›
The federal tax credit covers up to 30% of qualifying heat pumps' purchase and installation labor costs (up to $2,000). This credit applies to new and existing homes and can be claimed in the same tax year as the purchase was made, starting in 2023 and ending in 2032.What is the basic tax exemption for 2022? ›
The Canada Pension Plan (CPP) and Québec Pension Plan (QPP) have been increased by 2.7%, the maximum pensionable earnings are $64,900, with a basic exemption of $3,500 for 2022.How do I apply for the 400 energy Grant? ›
You do not have to do anything to get this money as the discount will be automatically applied. The £400 rebate, administered by energy suppliers, will be paid to consumers over six months in the following instalments: October - £66.How do I know if I am eligible for energy rebate? ›
To qualify: you must be in Council Tax bands A to D. you must be living in the property on 1 April 2022. the property must be your sole or main residence.How do I claim my warm home discount? ›
If you haven't received a letter by mid-January 2023 and you think you're eligible, then you can contact the Warm Home Discount helpline. You can either call the Warm Home Discount helpline on 0800 107 8002.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.
For business appliances to qualify, you must deduct the expense in the same year as when you start using them. The amount of the deduction also can't exceed the total amount of income you earn over the year, including business income and wages or salaries.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.Is homeowners insurance tax deductible 2022? ›
Homeowners insurance is one of the expenses you'll pay as a homeowner. Homeowners insurance is typically not tax deductible. On the other hand, homeowners do enjoy other tax deductions. You can claim these deductions if you itemize your taxes each year.
Are improvements to property deductible? ›
When you include the fair market value of the property or services in your rental income, you can deduct that same amount as a rental expense. You may not deduct the cost of improvements. A rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use.Are improvements deductible? ›
Repairs may qualify for a deduction if all the requirements are met, but improvements are not deductible.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 water damage to your home tax deductible? ›
Is water damage on house tax-deductible? It's unlikely that most of your loss is deductible on your taxes, though, unless it occurred because of a federally declared disaster. If you have hazard insurance on your home, you should file a claim with your insurance company for the damage caused by the leak.Which expense is not tax deductible for homeowners? ›
Nondeductible Home Expenses
Fire insurance. Homeowner's insurance premiums. The principal amount of mortgage payment. Domestic service.
If your combined household adjusted gross income is less than $100,000, your PMI is entirely tax deductible.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.
Whenever you fix or replace something in a rental unit or building you need to decide whether the expense is a repair or improvement for tax purposes. Why is this important? Because you can deduct the cost of a repair in a single year, while you have to depreciate improvements over as many as 27.5 years.Is paint an improvement or repair? ›
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.