Can you deduct the cost of home improvements on your taxes? The answer is a qualified no — under most circumstances, you cannot claim home improvement expenses as a tax deduction. However, there are several exceptions to this rule. Even if you’re not able to deduct home improvement costs from your tax bill this year, you might get a chance later on, when you sell your home.
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What Qualifies as a Home Improvement?
Routine maintenance and repairs don’t count as home improvement projects. For example, you can’t count the cost of replacing a door knob as a capital improvement.
Home improvements should be part of a larger project, such as putting in a pool or replacing all of your windows with energy-efficient double-paned glass.
What Type of Home Improvements Are Tax Deductible?
By law, some home improvements are eligible for tax credits and deductions.
Home Offices
Small business owners who work from home can deduct various expenses, including:
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Rent
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Maintenance
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Insurance
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Utilities
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Repairs
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Depreciation
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Mortgage interest
Calculate the percentage of your home’s area that’s taken up by your home office. Then multiply any expenses related to the whole house to find out what you can claim. For example, if your home office takes up 10% of your home’s area and your utilities cost $100, then you could claim a $10 — 10% of $100 — deduction on your taxes.
Is Painting Your House Tax Deductible?
Painting your house is not tax deductible under most circumstances. However, if you have a home office you may be able to write off a portion of the cost. Since painting falls under the category of routine maintenance and repairs, you cannot list it as a capital improvement.
Medical Purposes
Home improvements that serve a legitimate medical purpose qualify for tax deductions. For example, widening a doorway or building a wheelchair ramp would both qualify. You can only claim the medical expense deduction if it exceeds 7.5% of your annual gross income.
What Home Improvements Are Tax Deductible in 2023?
As part of a broader push to encourage environmentally sustainable behaviors, the federal government is offering two non-refundable tax credits to homeowners.
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The Residential Clean Energy Credit: Claim up to 30% of the purchase price for environmentally friendly appliances and home fixtures.
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The Energy Efficient Home Improvement Credit: Claim up to 30% of the price of certain energy-conserving upgrades.
Technically speaking, tax credits aren’t quite the same as tax deductions. A deduction lowers your income before taxes. By contrast, a tax credit is applied directly to your taxes. If you owe $3,000 in taxes and your energy credits total $3,000 or more, then you will pay $0 in taxes.
Capital Improvements and Cost Basis
Cost basis refers to the amount of money used to purchase an asset, like a house. For example, if you spent $350,000 on your house and resold it for $500,000, then your cost basis would be $350,000, and your profit was $150,000.
If you spent $50,000 in home improvement expenses, you can add that to your cost basis. The home improvements don’t need to be made in the same year that you sell your house. For that house sale, your cost base becomes $400,000 after the improvements, and your profit is reduced to $100,000.
Tax Implications
Currently, the IRS only taxes home sale profits in excess of $250,000 for single filers and $500,000 for joint filers. Adding home improvements to your cost base wouldn’t make a difference to your bottom line.
However, if you bought your home for $350,000 and sold it for $800,000 as a single filer, claiming those home improvements would lower your taxable profit from $200,000 to $150,000.
Final Take
Home improvements aren’t tax deductible in most circumstances. However, if you run a business out of your home or if you’re making environmentally sound or medically necessary home improvements, you might offset those expenses with a lower tax bill at the end of the year. Plus, it’s worthwhile to hold onto your home improvement receipts in case the profit on the sale of your home strays into taxable territory.
FAQs
Here are the answers to some common questions about tax deductions.
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Are moving expenses tax deductible?
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What home expenses are tax deductible?
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You can deduct certain medical-related home improvement expenses. If you own a business and work in a home office, you can deduct several expenses from your taxes, proportionally to the size of your home office.
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Also, energy-efficient and environmentally friendly improvements may qualify you for a tax credit.
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Which home expenses are not tax deductible?
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You can’t claim tax deductions on payments made to your home’s principal. Other non-deductible expenses include depreciation, homeowners insurance, down payments and utility payments.
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Information is accurate as of March 20, 2023.
This article originally appeared on GOBankingRates.com: Are Home Improvements Tax Deductible? Your Guide
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