Are Home Improvements Tax Deductible?

Are Home Improvements Tax Deductible?


Home Improvements Tax DeductibleOwning your home can come with many benefits. One of these benefits is deducting the amount of taxes you and your family are required to pay each year. By knowing the difference between a home improvement and home repair, you can learn how to leverage these savings. Home improvements are tax deductible.

The easy way to tell if your modification qualifies for a deduction is to ask yourself if the change is being made for aesthetic appeal. If the modifications increase the value of the home, they qualify for a deduction.

One way to claim a home improvement as tax deductible is if they are energy related. For example, if you have geothermal heat pumps, solar panels, fuel cells or small wind turbines installed, you can get a federal tax credit that covers 30% of the cost. You can even use the energy tax credit across multiple homes if you have a second home or vacation home. The only exception is that fuel cells can only be installed in your primary residence.

In order for a home improvement to be tax deductible, it may also be a capital improvement. Some examples of capital improvement are

  • Bathroom addition
  • Finishing a basement
  • Master suite addition
  • New furnace
  • A new deck

By definition, capital improvements should remain in your home for at least one year and add value to your home. Lengthening the life of the home or adapting it to new uses are considered capital improvements. Particularly, you should keep receipts for all home modifications made to accommodate a disability or medical condition. You can also deduct the costs for special equipment that had to be purchased for the home because of the resident’s condition.

You can view a list of all that the IRS deems acceptable on IRS Publication 523. The improvements you made need to remain in place when you sell the house to be considered a capital gain. The major difference between an improvement and a repair is that repairs restore to original condition, like painting or fixing the gutters. Also, note the difference between fixing a few shingles on the roof and replacing the entire roof. The former is a repair while the latter is a capital improvement. The only exception to this is if there is a fire. If a fire or natural disaster damages your home, anything you do to restore your home is considered a capital improvement. So are home improvements tax deductible? In order for the home improvement to qualify as deductible, it must add materially to the home, significantly extend the life of the home or allow your home to be used in new ways.

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