Are Home Improvements Tax Deductible?
When it comes to keeping your home looking good, energy-efficient, and structurally sound, then you’re going to need to invest in home improvements periodically. But these home improvements take a significant financial investment.
So, are home improvements tax deductible? There’s a lot of misinformation out there, so you could be in for a shock when it comes to filing your tax return.
The answer to the question isn’t a simple one. In general, home improvements on private residential property aren’t tax-deductible on your income taxes. However, there are some improvements that qualify for tax credits or certain tax deductions.
In this blog, we’ll be able to steer you through the maze of home improvements and taxes so you can make the most of any deductions and credits that you’re entitled to. Please consult with your tax professional before making any decisions concerning your tax situation.
What’s the Difference Between Home Improvements and Home Repairs?
When it comes to your home and taxes, the changes you make to your property can fall into one of two categories. A repair, or home improvements (capital improvement).
A home improvement can be classed as anything that will add to the value of your property or extend the time of use. These can include:
- Building an extension/extra rooms
- Converting the attic or basement into a liveable space
- Building a swimming pool
- Adding storm protection
- Alarm systems
- New central heating
While these improvements are not tax-deductible when it comes to your annual tax filing, you should still keep records as you will be able to include these when it comes to selling your property.
When you come to sell, the amount you’ve invested in home improvements will count towards the tax basis of your home. The larger the basis, the less “profit” you’ll be taxed on when you come to sell your property.
The other type of work on your home is classed as repair. And is not tax-deductible or added to the basis of your home when sold. This can include:
- Basic repairs and maintenance
- Fixing a roof or gutters
What Home Improvements Are Tax Deductible?
As mentioned earlier, there are some circumstances in which changes to your property could be tax-deductible.
Home Improvements for Medical Care
If you are planning on living in your current property for as long as possible, then you may need to adapt your property to make it safe to live in when you are older.
Or, if you, your partner, or your dependent need adaptations made to support a medical condition, then these could be fully tax-deductible as they are necessary projects, rather than designed to add to the value of your home.
Types of improvements include:
- Widening doorways for wheelchairs or equipment to fit through
- Building ramps to access the property
- Installing a stairlift or other lift between floors
- Specialist alarm systems (fire, security, medical)
- Installing bathrooms with accessible baths, showers, and basins
- Installing grips and handrails around the home
- Reinforcing floors/ceilings to accommodate heavy medical equipment or hoists
Tax deductions for medical alterations to the property must be claimed in the same year as they are completed. If you’re unsure whether you qualify for a tax deduction for medical adaptations, check with your tax advisor.
Home Improvements for Energy Efficiency
The environmental impact of our homes and lifestyles is huge. The government has committed to certain initiatives aimed at improving the energy efficiency of homes in order to reduce the carbon footprint and lower energy bills.
There are a number of tax-credit schemes available to homeowners who want to make their homes more energy-efficient. Unfortunately, these change fairly frequently in line with the latest policies, so you should consult with a tax specialist before you make your improvements so you know which improvements qualify.
These can include:
- Replacing doors and windows to reduce heat escape
- Solar panels
- Heat sink water heaters
- Wind turbines
- Insulation
Home Office Improvements
The COVID pandemic has accelerated the trend for remote working. If like many people, you work from home and want to create a home office, then you want to know if these are tax-deductible.
In response to this shift in working practices, new tax regulations have been brought in. If your employer has offices, but you also have a workspace at home, then you cannot class this as tax-deductible.
If you are self-employed, run your own business and your home office is your primary place of business, and there is an area dedicated to it, then it can be tax-deductible. If you or your business is eligible, then both improvements and repairs can be deducted.
Repairs can be deducted within the same tax year, and home improvements are in line with depreciation over time.
What home office improvements can attract a tax deduction?
- Improvements and repairs made to your home office?
- Partial deductions for other home repairs
- Remodeling to accommodate a home office
Improvements for Rental Properties
When renting out a property, you might want to carry out some work on it in order to make it attractive to potential renters or to bring it in line with any legal requirements.
The rules around tax deductions for rental properties can seem very complex. If you are carrying out repairs to the property, which are essential to keep it in a condition to rent, then these are deductible in the same financial year.
More substantial improvements such as installing new kitchens, bathrooms, or other upgrades can be deducted over a period of time in line with depreciation.
Get the Most Value For Your Home By Working with the Right Broker
When it comes to selling your home, you want to make the process as tax-efficient as possible. A good rule of thumb is to ensure that you keep all of the records, costs, and receipts for work carried out on your home. Then, choose a great broker who will be able to help you navigate the complex tax landscape and get you the very best price for your property.
Are you ready to make a move? Request a free home guide now.
What types of home improvements are tax-deductible?
There are a number of home improvements that can be made that are tax deductible. These include energy efficient appliances, windows and doors, as well as insulation. These improvements can help to lower your monthly energy bills, and in some cases, may even help you to qualify for state and federal tax credits.
Another type of home improvement that can be made that is tax deductible is installing solar panels. Solar panels can help to significantly reduce your monthly energy bills, and in some cases, may even provide you with a source of income if you choose to lease them to a utility company.
Finally, any improvements made to your home that increase its value can also be deducted on your taxes. This includes things like adding an addition onto your home, or finishing a basement. These improvements can add significant value to your home, and can make it more attractive to potential buyers should you ever decide to sell.
Making energy efficient improvements to your home is not only good for the environment, but can also save you money on your taxes. So if you are planning on making any home improvements in the near future, be sure to check and see if they are tax deductible. You may be surprised at how much you can save.
Is a kitchen remodel tax deductible?
A kitchen remodel can be a costly investment, but there are some ways to save on the costs. One way is to make sure that you are aware of the tax deductions that are available.
There are a few different things that can be deducted when you remodel your kitchen. The first is the cost of the appliances. If you purchase new appliances, you can deduct the cost of them on your taxes.
Another thing that can be deducted is the cost of any materials that you use in your kitchen remodel. This includes things like countertops, cabinets, and flooring. If you use any type of special equipment in your remodel, you may be able to deduct the cost of that as well.
Are new roofs tax-deductible?
In the United States, home improvements are generally tax-deductible if they increase the value of your property or make it more energy-efficient. However, there are different rules for new roofs specifically.
If you’re replacing an old roof, the IRS allows you to deduct the entire cost of the replacement as a “repair” on your taxes. This is because repairs are considered necessary maintenance that keeps your property in good condition.
If you’re installing a brand new roof on a property that didn’t have one before, the IRS only allows you to deduct a portion of the cost as an “improvement.” The deduction is based on how much the new roof increases the value of your property