There are a lot of benefits to improving the look and feel of your home.
It can improve the quality of your life and overall happiness. If you do some, or all, of the work yourself, it can give you a feeling of pride and satisfaction.
And it can lead to some financial benefits as well. A home remodel (done well, of course!) can increase the value of your home. Remodeling your bathroom, for example, will return usually between 87 percent and 93.5 percent of your initial investment, according to the Cost vs. Value Report.
But are there any tax benefits to fixing up and improving your home? Are home improvements tax deductible?
Are Home Improvements Tax Deductible?
No. Most of the time home improvements are not tax deductible. That said, there are some home improvements that you may be able to write off on your taxes.
With a few exceptions, the majority of home improvements and repairs are not tax deductible. However, there are three major exceptions to this rule: capital improvements, energy-efficient improvements, and improvements related to medical care.
Any work done on your home that significantly increases the value of your home, increases its useful life, or allows it to be used for new purposes qualifies as a home improvement for tax purposes. The following are examples: room additions; new bathrooms; decks; fencing; landscaping; wiring; walkways; driveway; kitchen renovations; plumbing upgrades; and new roofs, among other things.
There are no tax breaks available for remodeling your home. Home improvements are generally not tax deductible under the current federal tax code in the United States.
Unless you live in your house solely for the purpose of earning a living, you cannot deduct the cost of home improvements. These expenses are considered personal expenses and are not tax deductible.
So, if you make a house modification, such as installing central air conditioning or replacing the roof, you cannot deduct the costs.
At least in the year in which you make the purchase. However, if you keep track of those costs, they may help you save money on taxes the year you sell your home.
As stated earlier, there are some home renovations that can be tax deductible. Let us take a look at those.
A capital improvement is anything that increases the value of a home, increases its useful life, or adapts it for a new purpose. In some cases, these upgrades can help you pay less taxes when it comes time to sell your home.
You can deduct the cost of capital improvements from your home’s tax basis. There is no definitive list of what constitutes a capital improvement, but you can be certain that you will be able to include the costs of the following:
- An addition to the home
- Renovated roof
- A new central air conditioning system
Additional qualification enhancements include the addition of:
- An additional water heater
- Wind-driven windows
- An intercom system
- A security system for the home
If you installed energy-efficient equipment at your home in the previous year, such as solar panels, solar water heaters, geothermal heat pumps, small wind turbines, or fuel cell property, you may be eligible for a tax credit on your 2021 tax return.
Concerning the Renewable Energy Tax Credit, the IRS states that “energy-saving improvements” made to a personal residence before January 1, 2022 qualify for the credit, which is equal to 26% of the cost of the equipment installed. Your personal residence may consist of both a primary residence and a vacation residence.
Also, home improvements for medical purposes are tax deductible. If you make significant improvements to your home to assist a physically disabled person — whether you, a spouse, or a dependent — those costs may be considered medical expenses.
For example, ramps, widening doorways or hallways for wheelchair access, and modifying bathrooms or stairways, including lifts and handrails, all qualify for a full medical deduction if they do not increase the property’s value.