Home is where the heart is, and the heart doesn’t really know what it wants. So, you might want to change some parts of your house to match your taste. However, it is generally a very expensive venture to do that and an attempt at saving some money with any change is a good idea. Well, how do you save money on repairs, improvements, or changes of any manner on your house?
While there are a few ways to go about it, one of the best ways to go about it is to check if you qualify for a tax deduction or credit. However, it is a very clear line that you need to cross and you need to make sure that you aren’t skipping that rope. Keep reading to figure out if any repairs or improvements to your home qualify for a tax deduction. You could also probably use these saved bucks on some other improvement you’ve been waiting to do in your house!
Home Repairs vs Home Improvements
To begin with, let’s understand the difference between home repairs and home improvements. Home repairs consist of any change or activity carried out in order to keep your house in good, functional conditions. Examples might include fixing a leaky pipe, patching a leaky roof, or changing a window.
On the other hand, home improvements are any change or modification done to the house to increase its value, life, or accessibility. Any change that essentially gives the house a new lease on life can be classified as an improvement. These improvements can be things like replacing the roof, adding a new heating system, deck or pool, laying a new foundation, etc.
Are Home Repairs Tax Deductible?
Any repairs made to a house are made in order to keep it operational. Meaning, they have no effect on the value of the house in any way. This, in turn, means that repairs make no difference when it comes to the taxes or any deductions towards those taxes.
However, if your house is not just your primary residence, you may be able to qualify for a few tax deductions. Two ways your house can qualify for a tax deduction is if it qualifies as a home office or a rental property.
In order to qualify for a home office tax deduction in a repair, you need to have a fully registered business that shows a part of your home being used for your business exclusively and regularly. However, even if you qualify for this deduction, you can only claim deductions for the part of your house that is being used for the business.
For example, if you’re using your garage as your home office and you need to repair the wiring, you can only write off the wiring in the garage for a tax deduction. Another scenario where you can qualify for a home-office tax deduction is if the repair you are making affects the whole house.
For example, if you have announced 35% of your house as your home-office space, you can deduct 35% of the cost to lay a new foundation or repair the HVAC system.
Rent Based Deduction
If you’re renting a portion of your house to somebody, you may be able to qualify to deduct the cost of repairs as a part of the rental expenses. Similar to the home-office deductions, you can only deduct the cost of repairs to the part of the home rented, without covering anything else.
Are Home Improvements Tax Deductible?
While you can qualify for a tax deduction on certain types of improvements, it’s a very stringent list of criteria that needs to be met in order to be eligible for a deduction. In fact, most improvements are not tax-deductible. The only ones that are, fall into three categories: capital improvement, medical improvement, and energy-efficient improvements.
A capital improvement is one that increases the value of your house, adds usability, or extends its life significantly. These improvements are often termed as ‘changes for resale value’ and one fundamental criterion they carry is that these changes have to last more than one year. One thing to remember is that since these improvements will potentially increase the value of your home, it is important to itemize the receipts and bills, including all material and labor costs.
According to the Internal Revenue Service (IRS), there is a very specific list of improvements that qualify for a tax deduction. It is as follows:
- Building any sort of addition to your home like bedrooms, bathrooms, garage, porch, patio.
- Finishing an attic or a basement.
- Adding items to the exterior of your house like storm windows, satellite dish, or a new roof.
- Making changes to the lawns and grounds like adding or modifying the driveway, walkway, landscaping, or retaining wall.
- Adding or changing layers of insulation in the walls and floors or getting work done on the piping and ducting.
- Making changes to the interior of your house like installing built-in appliances, wall-to-wall carpet, or a fireplace.
Useful Resource: How to Pay for Home Improvements – DimeAlley.com
Since capital improvements add to the value of your home, you can save some money on taxes on the profit you make upon selling the house. The biggest factor for the increase is the rise in the base value of your house. Additionally, you need not report the capital gain you make upon the sale of your house during tax season if you meet certain criteria. The two deciding factors for that are whether or not you have owned the property for a minimum of five years, and whether the profit is less than $250,000. ($500,000 if married taxpayers are filing jointly.)
Energy Efficient Improvements
There is a tax credit specifically in place for certain energy-efficient standards. Under the banner of ‘Residential Energy Efficient Property Tax Credit’, homeowners can avail a tax credit that allows them to receive a credit in the form of a certain percentage of the increased cost of the “qualified property.”
In order to qualify any part of your property, you need to report the installation and proper functioning of energy-efficient equipment. These pieces of equipment can contain energy-saving or energy-producing machines. Some examples of such machines are:
- Solar Water Heaters
- Solar panels
- Residential Wind Turbines
- Geothermal Heat Pumps
- Fuel Cells
The caveat for this credit is that it only applies to the home improvement equipment installed before Dec. 31, 2021. After which, the qualifying cost of equipment has been decreasing. As per data shared by the Internal Revenue Service, the chart below contains the qualifying percentage of improvement cost based on the year in which the improvements were installed.
Year In Which Property Was Placed In Service Percentage Of Cost That Qualifies
After Dec. 31, 2016 and before Jan. 1, 2020 30%
After Dec. 31, 2019 and before Jan. 1, 2021 26%
After Dec. 31, 2020 and before Jan. 1, 2022 22%
Remember that this is a tax credit, which is different from a tax deduction. A tax credit is an amount that is subtracted from the total taxes you owe. On the other hand, a tax deduction is the amount deducted from your income before the payable tax amount is determined.
If you make any improvements to your home for medical reasons pertaining to you, your spouse, or your dependant, you may be able to qualify for tax deductions for medical expenses. You can also qualify for the same tax deduction if the permanent medical improvements made to your home increase the value of your home.
In order to determine the value of the medical expense, you will have to subtract the increase in your home value post-improvements from the cost of the improvements. The difference in these two amounts is the applicable medical expense, ergo, the amount that is tax-deductible.
Additionally, the expenses that you have to pay out-of-pocket, without any coverage by your health insurance plan, will qualify as tax-deductible. Due to this, it only makes sense for you to pursue this deductible if you have sizable medical bills that are not covered. Otherwise, the standard medical deduction is good enough to offset your medical costs.
However, there is a specific list of changes and improvements that are defined by the IRS that qualify for the medical expense tax credit. They are as follows:
- Building entrance and exit ramps
- Widening doorways and/or modifying hallways
- Installing railings or support bars
- Lowering furniture for better accessibility
- Modified safety equipment like smoke detectors, fire alarms, and accessible first aid
- Modifying stairways or adding motorized lists on the same
Before you apply for this deductible, make sure that the improvements made to your home fit within the definition of a medical expense under this act. Your application might get rejected if an expense is deemed to be non-medical. Additionally, there is a high chance that you do not qualify for this tax-deductible as the medical expense is above “reasonable costs.”
Also See: Are Moving Expenses Tax Deductible? | Top States With Lowest Taxes
Saving up a few bucks by means of tax deductibles or tax credits is a great way of raising your account balance while maintaining a stellar credit record. Our suggestion is to keep all of your improvements and repairs logged regardless of whether they qualify for any sort of benefit, as they can be of immense use. That being said, we hope you get to build the house of your dreams as many times over as you would like, without the worry or hassle of having a context of allowing you to build the same.
FAQs On Are Home Repairs Or Home Improvements Tax Deductible
Are Home Improvements Tax Deductible?
Not all kinds of home improvements are tax-deductible under federal law. However, there are a few scenarios in which your house can qualify for a tax deduction. These scenarios include improvements made for energy efficiency, medical aid, and capital gains.
Can I Write Off Home Repairs On My Taxes?
No. Any expense that can be classified as a repair and not an improvement is usually not deductible.
Is A New Kitchen A Capital Improvement?
Depending on how you classify it, a new kitchen can be a capital improvement or a revenue expense.
Is Painting A Capital Improvement?
While capital improvement includes changes that are made to prolong the life and value of a house, painting does not fit into any criteria.