What Home Improvements are Tax-Deductible?

Tax season is close, and tax planning is a must every year if you want to save your hard-earned money. Are you looking to upgrade your home? That’s good news, considering you can write off a lot of home improvements from your taxes.

If you’re wondering if you can get a tax break on home improvements that you do, the answer is an emphatic “yes”. However, much like anything related to taxes, there are caveats, exceptions, and specifics you need to follow. Here are the home improvements that you can write off as tax deductions.

1. Energy-Efficient Home Improvements

Successful real estate agents know that among the best options for tax-deductible improvements to your home are energy-efficient upgrades. The government has encouraged energy-efficient homes for a while now. Homeowners can receive a tax credit for energy-efficient homes upgraded until the end of 2021.

Energy-efficient improvements include low-E windows, doors, rooves, insulation, and even skylights. You can also deduct hot water heaters, central AC, air-source heat pumps, and circulation fans. 

If you add these to your home, you can expect a tax credit of as much as 10% of the cost, up to $500. You can also specify an amount that goes between $50 and $300, which changes depending on the improvement you make.

For those looking to utilize renewable energy sources like solar energy, fuel cells, geothermal heat pumps, wind turbines, and even biomass fuel, you’re also eligible for a tax credit. You may qualify for a federal tax credit that amounts to 26 percent.

2. Home Offices Improvements

Home offices are becoming a norm, and whether you’re using essential home renovation tools or not, you can get a home office deduction for yourself. Using a portion of your home as an office for your business can net you a tax deduction. However, there are specific requirements that you need to fulfill.

You have to be a business owner with a legitimately registered business entity, for starters. You also have to prove that you exclusively use one specific part of your home for your business. If you can qualify, you can expect as much as 100% of the cost of improvement.

Improvements to your home are depreciable according to how much you use the room as a home office. You can also take a simplified deduction for your home office, where you get a $5 deduction for every square foot of your home used for business, up to $1500 for a 300 square-foot space.

The good news with home offices is that repairs and improvements are eligible for the tax deduction if you qualify for the tax break. The caveat is that the repairs have to be on the parts of your home used for your business.

3. Home Improvements For Medical Care

Another home improvement that you can do that can qualify as a tax deduction are improvements towards medical care for a family member. These facilities are added for seniors or differently-abled members of the family to allow better mobility.

You can deduct expenses for medical equipment installed in your home if its primary purpose is to care for you, your spouse, or a dependent. These can be several kinds of improvements, including:

• Building entrance and exit ramps

• Support bars and pulls for the bathroom

• Adding lifts for your staircase

• modifying/powering your cabinets

• Improving fire alarms and smoke detectors

When getting this tax deduction, make sure to claim it within the year. You can cover these home improvements under this tax and get your deduction when you apply for it.

The issue with home improvements as medical expenses is that you can’t deduct the entire cost. Even if you itemize, you can only deduct the value beyond 7.5% of your adjusted gross income (AGI).

4. Home Improvements For Property Sales

Not all home improvements can score you an immediate deduction. Then again, these special improvements can lower your tax bill once you sell your home.

For homeowners, qualified homeowners are eligible to exclude as much as $250,000 if you’re single, with up to $500,000 for married homeowners. The law notes that this calculation is based on the total financial investment you have on the property at the date of sale.

Any improvements that add value to your home, prolong its use, or adapt to new services are deductible from the home’s sales tax. If you make improvements using your Home Equity Line of Credit (HELOC), then the interest you accrue is deductible if you qualify for itemization.

If you make resale-focused home improvements, these home improvements will be part of your sale basis, which are tax exempt. The tax deductions can be available once you sell your home, so it’s vital to ensure that you itemize receipts and track where your money’s spent. This includes labor costs, so you need to be extra careful to not lose out on money.

5. Home Improvements For Partial or Full Rental Property

Another way that you can depreciate your home improvement costs is if you rent out a specific portion of your home. By renting out a room or a location in your home to others, you can set the cost of upgrades as rental expense. The amount is then deductible from the rental income that you receive.

Much like renting out a second home if you have it, there are specific caveats apart from getting a portion of your rental income depreciated. For starters, you need to split expenses between the unrented parts of your home and the area that you rent out. This includes mortgage interest, mortgage insurance, and even real estate taxes.

With qualified home improvement projects, you can also deduct expenses like electricity from your rental. Liability insurance is also something that you can deduct in its entirety because it qualifies as a rental expense.

Rental repairs can also be deducted within the year that they were completed. You can depreciate any upkeep that you need to do to maintain a habitable space for tenants. Room additions are also deductible over time with depreciation.

Final Thoughts

Not all home improvements are tax-deductible, but there are many that you can add to your list if you qualify for specific tax perks. Knowing how you can be eligible is essential, and it should save you a good chunk of money. If you’re doing home renovations, see if you have the requirements we listed above.

Guest Contributor: Kat Sarmiento