If you’re about to do some home improvement work on your house, then you may be wondering whether you can save on some money and deduct the home improvements from your taxes.
After all, we’re all looking to save where we can. So, are home improvements tax deductible?
We’ve got the answers for you in our informative article below.
Read on to find out all about the cases where home improvements are tax deductible, and the cases where they are not.
Are Home Improvements Tax Deductible?
To begin with, let’s answer the big question you’re asking. To put it simply, home improvements aren’t tax deductible. In most cases, you are not going to be able to deduct them at the end of the tax year.
However, don’t lose hope just yet, because there are a handful of exceptions where you can get tax deductions regarding home improvements.
The exceptions relate to specific types of home improvements that you may have done. One of them is if you’ve been doing energy efficient improvements, while another is all to do with capital improvements.
The third case is when your improvements revolve around medical care. We will go into the specifics of each below.
Energy Efficient Improvements
If you’ve been improving your home with some building work, then it may have been energy related work.
If this is the case, your newly updated house might now be meeting specific energy efficiency standards.
If you are, then you could qualify for the “residential energy efficient property credit,” which is a tax credit that gives you credit that is equal to a specific percentage of the cost of qualified property.
Tax credits are different from tax deductions.
But what makes a qualified property? Well, a number of different improvements. If you installed small wind turbines or geothermal heat pumps, they both qualify.
Similarly, solar related additions too: solar water heaters or solar electric property. Additionally, fuel cell property qualifies too, however only with $500 for each half kw of capacity.
If you’re wondering, traditional roofing structural components and materials do not count, though you can get solar tiles and shingles that will help contribute.
However, according to the website of The Internal Revenue Service (IRS, the people who collect and set tax, and set these rules) then the percentages can vary.
By this, we are referring to the percentage of the cost of home improvement. This means that you’ll need to check the specifics to see which percentage category you fit into.
If the property was placed in service after December 31st 2016 and before January 1st 2020, then the percentage is 30%.
If it was after December 31st and before January 1st 2023, then it’s 26%. Finally, if it was after December 31st 2022 and before January 1st 2024, then it’s 22%.
This refers to improvements that add value to the house, through extending its life or adapting it for fresh uses.
With some of these improvements, you can pay less tax on the money you earn from selling the house off. These select improvements include:
- Additions: if it’s bedrooms, bathrooms, deck, porch, garage, patio
- Exterior: if you’ve added a new roof, new siding, storms windows and doors, or a satellite dish
- Insulation: if you’ve insulated the walls and/or floors, or even the attic, ducts, and pipes
- Interior: if you’ve modernized the kitchen or if you’ve improved the built-in appliances, flooring, fireplace, or wall to wall carpeting.
- Lawn And The Grounds: if you’ve improved the walkway and/or driveway, the fences, retaining wall, and landscaping. Even improving the swimming pool counts.
- Plumbing: if you’ve improved the water heater, filtration system, septic system, or the soft water system
- Systems: if you’ve improved the central air, central humidifier, central vacuum, heating, wiring, furnace, ducts, or the house security. Even improving the lawn sprinklers helps!
However, certain repairs you carry out on your home will not count as capital improvements.
For example, if you’ve painted a few rooms so that their walls aren’t faded and scuffed, that won’t count as a capital improvement and you won’t be able to get a tax deduction on it.
With that being said, repairs will count when they’re part of a big overall improvement project. So if you’re replacing all the doors in the house, then that could count as an improvement.
If you were just replacing one broken door, though, it wouldn’t equal a tax reduction.
A capital improvement receives a tax deduction because it increases the value of the overall house, and you can therefore save some money if you’ve got a profit when you sell the place off.
If you’ve made home improvements that are intended for medical reasons (such as providing medical care for you, your spouse, or your dependent), then you can assign it as a medical expense on your taxes.
There are a variety of improvements that count as medical expenses. For example, if you install support railings in bathrooms or build entrance/exit ramps, then they count.
Similarly, installing handrails or bars are included too, as well as modifications to the stairs. Widening the entrance/exit doorways also count, as do widening hallways and other doors.
To further improve accessibility, you can lower kitchen cabinets, which count too.
Finally, modifications to the smoke detectors and fire alarms are also filed under medical improvements.
Some improvements increase the property value. These can be counted as capital improvements, so subtract the value increase from the improvement’s cost – the difference is the medical expense.
If the property value hasn’t gone up due to improvement, then the entire home improvement cost can be a medical expense.
Specific types of home improvements are tax deductible – make sure you know when it comes to filing your taxes.