Are home improvements tax deductible?
What are home improvements?
A person’s home is sacred to them. For many people, it’s the place where most of life happens. Accordingly, people are bound to want to make changes where they see room to improve their lives by improving their home. But what are home improvements? The better question is, what are capital improvements?
The reason for the distinction is that, depending on the changes you’re making, the IRS may evaluate some of your improvements as tax deductible. The IRS defines a capital improvement as any upgrade that substantially adds value to your house, prolongs the life of your home, or adapts it to new uses.1
With this in mind, you may want to ask some important questions before starting a new home improvement project. Is the project you’re undertaking an improvement or a repair? Should you do it yourself or hire a professional? Will it actually help you save on taxes this year? Should you go through with this remodel or just move to a new place? Let’s get into it.
Capital improvements vs. repairs?
Whereas capital improvements are any upgrade that substantially adds value to your house, prolongs the life of your home or adapts it to new uses, repairs are defined by the IRS as any modification that restores a home to its original state and/or value. Adding a new bedroom to your home would be categorized as an improvement, while replacing old window screens are a repair job.
Are home repairs tax deductible?
For the most part, repairs save you more money on future maintenance than they do on your tax returns. There are a few exceptions, however. If your repairs were made in the aftermath of a natural disaster, or if they were made to a rental property or a home office then they may be considered tax deductible.2
What types of home improvements are tax deductible?
So, if the IRS defines some home improvements as tax deductible, which projects make the cut? Why isn’t everyone breaking down a wall and putting that new game room in today? If you’re already halfway to the pawn shop to buy yourself a vintage arcade, you might want to hit pause. Most projects that are considered tax deductible generally involve creating some greater benefit, not just a luxury benefit.
Are energy efficient home improvements tax deductible?
Are you cutting back on your carbon footprint with this new improvement? The residential energy-efficient property credit applies to home improvements that meet a certain energy efficiency standard. Examples are solar electric equipment, solar water heaters, geothermal heat pumps, small wind turbines or fuel cells.3 Check out these tips on how you can build a more eco-friendly home.
Are home office renovations tax deductible?
The space you use exclusively for business purposes, even if it’s inside your home, can be counted as a business expense when you need to make upgrades to it. During the same year that you make improvements to your home office, you can deduct the expense of those renovations.4 Here are some tips on designing the ideal home office space.
Are rental property renovations tax deductible?
Renting a property might not be the same thing as running a business, but the money you spend on improvements to any rental property you own do count as deductible. You can even count more everyday projects like fixing cabinets or faulty appliances if it’s in the rental unit.5
Are medical care home improvements tax deductible?
Have a medical condition that requires you to make improvements to your home? Those improvements will be help you out in life and on your taxes. Projects such as wheelchair ramps, widening hallways, railing installations, modified stairways and more are all deductible as medical expenses.6
Is a new roof tax deductible?
Signs that your roof is on its way out may abound, but the value of replacing it isn’t going to stretch right away. A new roof might do a lot of good for you and your home, but it’s probably not going to help you out much on your taxes this year. Projects like roof replacements are not deductible, not immediately at least. If you go through with a project that increases the overall resale value of your home, then you may be able to deduct any expenses you’ve kept track of during the year you sell your home.7
Benefits of improvements to your home
Who wouldn’t want to improve their home? Even if you love it just the way it is, there’s almost always something that could be changed a bit for the better. Home improvements can increase your everyday quality of life, and as we’ve seen, they can save you a fair amount of money on your taxes if you carefully track your expenses. Besides tax deductibles, they also usually increase the value of your home, which helps even if you don’t plan on selling it any time soon because it increases your home’s equity.
The more valuable your home is, though, the more value that you need to protect. Insuring your home gives you the peace of mind that the place you’ve built – and the people who call it home – are protected. Get a free quote from Nationwide today and learn how homeowners insurance can protect your home, improvements and all.