Tax season is here, and preparing your taxes and understanding which expenses you can deduct can be confusing, especially if you invested in major home renovation projects during the past tax year. If you’re currently in this position, you’re likely to have plenty of questions about home improvements tax deductions, from “can you write off home improvements?” to “is a kitchen remodel tax deductible?”
This blog post is designed to help you identify which projects you can write off and whether or not you can claim your kitchen remodel on your taxes this year.
Remodel, Renovation, or Repair: Which is Tax Deductible?
Repairs are not tax deductible for a personal residence, except in certain situations (e.g., home offices and rentals) described below. Certain home improvement projects may be tax deductible, though, if they fit the criteria of adding value to your home or prolonging its life.
To determine the potential tax benefit of your project, ask yourself these questions:
- Does your project extend the life of your home?
- Does your project add value to your home?
- Does your project add usefulness to your home?
By treating yourself to a remodel, which takes care of any issues and upgrades your home may need, you may potentially benefit from tax deductions.
Deducting Home Office Improvements
If your home is only used as a personal residence, you cannot deduct the cost of any home improvements. However, home office improvements and even repairs are tax deductible. If you or someone in your family uses your home as an office for a legitimate business, you could qualify for a home office deduction.
Improvements that only benefit the home office, such as installing shelves or lighting in the office itself, can be deducted 100%. Any improvements made to your entire home can be deducted based on the percentage of your home taken up by your home office. For example, if 25% of your home is used for remote work, you can deduct 25% of the cost to upgrade your heating and cooling system.
Tax Deductions for Bathroom Remodels
Similar to kitchen remodels, bathroom remodeling projects may also be tax deductible if they meet the listed requirements (e.g., adding functionality or value to the home). You may also be able to deduct improvements or repairs in this area of the home if the bathroom is used by a tenant.
In addition, you may be able to deduct parts of a bathroom remodel that have a medical purpose. For example, if you modify your shower, add handrails to your bathroom, lower cabinets, or modify toilets for a family member, you could claim those expenses on your taxes.
As always, be sure to consult with a tax specialist to determine if your specific bathroom remodel qualifies for deductions.
Rental Property Home Improvement Deductions
If you rent out your home, either partially or fully, you can deduct the cost of home improvements from your rental income. This deduction process is similar to calculating how much of your home office improvements are tax deductible; you may only deduct improvements that benefit the rented portion of the house. If the improvements benefit the whole house, deductions can only be made based on the percentage of the rented space.
Tax Deductible Home Improvement Projects
When evaluating remodeling projects for tax deductions, you might wonder about specific work, like “are kitchen countertops tax deductible?” or “can I write off new windows?” While the tax deductibility of specific home improvements can vary based on the circumstances, it’s essential to be aware of renovations that are more likely to qualify for deductions.
For example, energy-efficient home improvements, such as installing solar panels or upgrading insulation, often come with tax incentives. Similarly, remodeling projects that adapt your home for medical reasons, such as installing ramps or widening doorways for wheelchair accessibility, can also be tax deductible. Here are some other examples that are likely to have a positive impact on your taxes:
- Adding a bathroom or bedroom
- Installing new wiring or plumbing
- Putting in a new roof
- Finishing your basement
When working on your kitchen, bathroom, or other areas of your home, keep these specific home improvement projects in mind for potential tax deductions.
Tax Implications of Selling Your Home
Often, the profit you get from selling your home is tax-free on a federal level, so you do not have to worry about taking home improvements into account when handling the sale of the house. In general, the first $250,000 of profit for single filers and the first $500,000 of profit for married joint filers can be excluded from your taxes.
Any improvements you make to sell the house or make it more marketable can be included in your selling costs, which are tax deductible. The primary requirement for including these expenses in your selling costs is that they have been made within 90 days of the sale.
You should be aware of capital gains taxes in your state. In some states, you may need to pay a capital gains tax on any profits from the sale of your home. In this case, you may be able to add the cost of home improvements to the cost of your home. That means you can use the cost of your remodeling projects to reduce the overall profits that you need to pay taxes on when you sell your home.
Consulting a tax professional is essential to ensure that you make appropriate claims and deductions when it comes to tax time after selling your home.
A beautiful new home addition. Any major home renovations made before you sell could significantly reduce your profit from the selling price, and ultimately your taxes.
Always Keep Financial Records
Whenever you complete a major kitchen or bathroom renovation, build a home addition, or upgrade any other part of your home, it’s important to keep financial records. When the time comes to review your tax deductions, you will want to have documents and receipts of every project you’ve worked on during the past year.
These tips should help you get started with approaching your finances and help you identify potential home improvements you can claim on your taxes. As always, contact a tax specialist or CPA for expert advice tailored to you to complete your tax return.
Start Designing Your Tax-Deductible Kitchen Remodel
Ready to begin a potentially tax-deductible kitchen or bathroom remodel, home addition, or home office upgrade? Contact us today to get started on your design-build project. Our team of professionals is here to help you create the perfect space for your needs.
Content last updated Apr, 2023.