Certain home improvements qualify for tax deductions, reducing your taxable income. Renovations that enhance accessibility for disabled individuals, such as ramps or widened doorways, may be eligible. Energy-efficient upgrades, including insulation, windows, and solar panels, can also qualify. If you use your home for business purposes, a portion of improvements related to that space may be deductible. However, purely cosmetic changes or enhancements that don’t add functionality or save energy typically don’t qualify as tax deductions. It’s important to consult with a tax professional or review IRS guidelines to determine which home improvements qualify for deductions and ensure proper documentation.
Medical Modifications
If you make improvements to your home to accommodate a medical condition, including those for your spouse or dependents, those costs may be tax-deductible. Here are some examples:
- Ramps and lifts for a wheelchair
- Widened doorways
- Grab bars in bathrooms and showers
- Stair lifts
To qualify for the deduction, the modifications must be medically necessary and primarily for the medical care of the individual with the disability. The costs must also be reasonable and not add to the value of your home. You’ll need to provide documentation from a doctor to support your claim.
The deduction for medical modifications is not limited by the 2% of AGI floor that applies to other itemized deductions. However, the total deduction for medical expenses, including medical modifications, cannot exceed 7.5% of your AGI. The deduction is claimed as an itemized deduction on Schedule A of your tax return.
Energy-Efficient Upgrades
If you’re looking to make your home more energy-efficient, you may be able to deduct the cost of certain upgrades from your taxes. Here are some of the most common energy-efficient upgrades that qualify for the tax deduction:
- Insulation
- Windows and doors
- Roofs
- Heating and cooling systems
- Water heaters
- Appliances
To qualify for the tax deduction, the upgrades must be made to your primary residence and must be completed by a qualified contractor. The deduction is limited to $500 per year, but it can be carried over to future years if you don’t use the full amount.
| Upgrade | Maximum Tax Deduction |
|---|---|
| Insulation | $200 |
| Windows and doors | $150 |
| Roofs | $150 |
| Heating and cooling systems | $150 |
| Water heaters | $150 |
| Appliances | $150 |
Rental Property Improvements
Rental property owners can deduct certain home improvements from their taxes. These improvements must be:
- Capital improvements
- Made to improve the property’s appearance or function
- Not personal in nature
The following are some common examples of rental property improvements that are tax deductible:
| Improvement | Deductible |
|---|---|
| Adding a new roof | Yes |
| Replacing the siding | Yes |
| Adding a new bathroom | Yes |
| Installing a new kitchen | Yes |
| Building a new garage | Yes |
| Repainting the interior | No |
| Landscaping | No |
| Adding a pool | No |
Capital Gains Exclusion
When you sell your primary residence, you may be eligible for a capital gains exclusion of up to $250,000 ($500,000 for married couples filing jointly). To qualify, you must have owned and lived in the home for at least two of the five years prior to the sale.
The capital gains exclusion is not available for vacation homes, rental properties, or other non-primary residences.
If you make improvements to your home, you may be able to increase the amount of your capital gains exclusion. However, only certain types of improvements are eligible. These include:
- Additions to the home, such as a new room or garage
- Improvements to the home’s structure, such as a new roof or foundation
- Major renovations, such as a kitchen or bathroom remodel
You cannot deduct the cost of repairs or maintenance on your home from your capital gains. These expenses are considered part of the normal upkeep of the property.
| Improvement | Example |
|---|---|
| Addition to the home | New room, garage, or porch |
| Improvement to the home’s structure | New roof, foundation, or siding |
| Major renovation | Kitchen or bathroom remodel, addition of a new fireplace |
Well, there you have it. These are some of the home improvements that may be tax deductible. As always, it’s best to consult with a tax professional to determine what is deductible for your specific situation. Thanks for reading! If you have any other questions or need further clarification, feel free to contact us again. We’re always happy to help.