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Everything You've Ever Wanted to Know About Tax Deductible Home Improvements

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Everything You've Ever Wanted to Know About Tax Deductible Home Improvements

"Your home should tell the story of who you are," says Nate Berkus, the designer Oprah made famous in surprise home renovations he did for guests on her show. Most of us want to make changes or improvements to our homes or apartments so that the space we live in makes us feel comfortable and happy. Sometimes we take on home improvement costs to make our homes more user-friendly or just to have the satisfaction of knowing your abode looks a bit nicer now. Whatever the reasons we make changes to our homes, an important question that almost always comes to mind is, "Are home renovation and improvements tax deductible?" The answer is yes, there are actually tax deductions for improvements, but maybe not in the ways we would expect. This is especially useful for paying taxes as an independent contractor or self-employed individual.

Image describing IRS deductions for home improvements including capital improvements, repairs, fixing design flaws, home office changes, and solar panel tax credit. No mention of self-employed, 1099, freelancer or taxes.

Table of contents

What home improvements are tax deductible?...Read more

Capital improvements...Read more

Can I write off home improvements after disasters...Read more

But are capital improvements tax deductible?...Read more

What's not considered an improvement?...Read more

Are home improvements tax deductible this year?...Read more

Making sure you catch every tax deduction...Read more

What home improvements are tax deductible?

Home improvement write-offs are just one of a handful of important itemized deductions available to taxpayers, but let's look at exactly what kinds of home improvements the IRS considers to be tax-deductible. It looks at all the kinds of changes you might make to your home and the different situations where you might have home improvement costs. For example, you might want to know, "Are home repairs tax deductible?" For each one, they have decided which category each update, improvement or repair falls into and whether it affects your self-employment taxes, so every homeowner is clear about every tax deduction for home improvement. Not all of the changes you make to your home are eligible as tax deductions for home improvements, but some improvements can also be considered home office tax deductions. For example, if you're an artist who also uses their home as a studio, you can claim the studio area as a deduction.

Capital improvements

Image showcasing examples of home improvements such as new furnace, wood floors, new roof, bathroom renovation, and new electrical system offered by eCapital Home Improvements. No mention of self-employment, 1099, freelancer, or taxes.

If you own a home, you're probably going to make capital improvements as you live in it over time, whether you do it intentionally or not. And, you want to know, can you write off home improvements? For example, if you add another bathroom in your house, that's obviously intentional, but if your water heater conks out, you don't really have a choice but to replace it. Both fall into the capital category and are considered by the IRS to be tax deductions for home improvements. The IRS considers things that give your property an upgrade that prolongs its useful life, like putting a new roof on, to be in the same category. According to them, it has to last for more than one year to be considered a capital improvement. Same with something that enhances the existing home, like solar panels, or adapts part of the home for new uses, like finishing your basement.

Can I write off home improvements after disasters

There seem to be more natural disasters happening in more places around the globe than ever before. If you live in an area prone to wildfires, tornadoes or floods, you'll want to take note of this: the IRS classifies anything you do to make your house the way it was before the disaster struck as a capital improvement. That makes every home improvement tax-deductible after a disaster. So everything you do to restore your place to its former beauty – even things not normally considered capital improvements, like repainting or fixing the gutters – is in this case, a capital improvement.

But are capital improvements tax deductible?

The answer is yes, but only when you go to sell the house. Changes like these add to the value of your home, and when you sell it to someone, that's when those improvements will affect your taxes. Here's how:

Most homes appreciate in value over time, so when you sell yours, you will likely make a profit
The profit is called a capital gain, and the IRS usually taxes capital gains
If you make capital improvements to your home, you can write off the cost of them from the capital gains tax you might have to pay

Will any of this matter to you? Maybe. Most people will never have to pay taxes on their profits when they sell their homes. This is because the IRS does not tax the first $250,000 of profit for people filing individually, or $500,000 for taxpayers filing jointly. But, if you've owned your home for a long time and made significant capital improvements over time, can you write off home improvements? A tax write-off could be a possibility for you when you sell your home. And there are other ways that home improvements can be a tax deduction for you in the current tax year. More on that later. If you own your own business or work as a freelancer, you can also access this complete guide to tax deductions. Taking advantage of these tax deductions can maximize your tax savings and help you keep most of your money in your pocket.

What's not considered an improvement?

Image with text listing home improvement projects that may be tax deductible according to the IRS, including adding a bathroom, finished basement, insulation, plumbing, paint job, and general repairs. No mention of self-employment, 1099, freelancer, or taxes.

Are home repairs tax deductible vs. are home improvements tax deductible?

The difference between capital improvements and repairs to your home can be subtle. But in general, anything you might call a repair is probably not considered a tax-deductible capital improvement. If you've got a hole in your roof, for example, and you patch it up, it's not the same as replacing the roof, which, as we know, is a capital improvement. One way to look at it is how long each change is likely to last. The existing roof will probably get another hole in a year or maybe a few years, but a new roof will remain hole-free for decades. There's a good chance you will sell the house before it needs replacing again, and that's the key. The IRS considers something that brings a part of your home back to its original condition to be a repair, not a tax deduction for home improvement. So, can home repairs be tax deductible? No, only improvements are. Something that makes a part of your home better than its original condition is considered to be an improvement. Let's say you occasionally rent out your home and add a breakfast bar to your kitchen to make it look nicer. You can write off the cost of that addition when you pay Airbnb 1099 taxes as it qualifies as a home improvement. The same logic follows anything structural in your house that you replace rather than repair, like the foundation. In fact, just about anything you replace in your home can probably be an unintentional capital improvement that ends up being a tax deduction for home improvement for you. You may not want to replace the furnace, but if at some point it needs a repair that costs more than a new furnace would, it only makes sense to replace it.

Redecorating vs. correcting a design flaw

If you finally decide to do something about your home's 1970s burnt-orange exterior and repaint, that's not eligible to be one of your home improvement tax deductible, no matter how desperately you (or your neighbors) think your home needs it. Even if a new set of drapes would do wonders for the interior of your home, that would not be considered a capital improvement either. These decorative touches don't fit the criteria of prolonging your home’s useful life. Essentially they're not going to make your house last longer. But, even if they are designer drapes, they should not be confused with changes you make to your home to fix design flaws. If you see a gap between two walls that's letting heat out all winter long, you'll probably hire a professional to make whatever structural changes needed to bring the walls together. The IRS would see anything like this as a typical part of the capital home improvement expenses that any homeowner has.

Are home improvements tax deductible this year?

Some tax-deductible home improvements can give you a tax benefit before you sell your home. In some situations, changes to your apartment can be eligible, too.

Solar panels

As soon as you have solar panels on your home, you start saving money immediately, but installing them benefits you tax-wise, too, at least until the end of 2023. This is because the federal government introduced the Investment Tax Credit in 2006 to give homeowners a break on their taxes if they start to use clean energy technology. The tax credit works for other forms of clean energy outside of solar panels, but solar energy is the most feasible for most homes nationwide. "Is a tax credit the same as a tax deduction," you might be asking? Usually, tax credits give you much bigger savings. When you take a deduction for, say, a business lunch you had with a client, you deduct the price of that restaurant bill from the income tax you owe. When you receive a tax credit from the government for installing a solar panel system, you can deduct 26% of the cost from your income tax. That's if it's installed in 2022 or 2023. After that, the credit is no longer available.

Improvements to your home office

If you're self-employed or a freelancer, and you work out of a home office, there are two ways you can deduct the cost of changes you make to your home. For improvements you make just to your home office, you can write off 100% of the cost. If you turn a windowless storage room into a home office and added a window to bring in light while you're working, you can deduct the cost of the window and installation. Same with a new lighting system if you're a freelance photographer, and have a home photo studio. Anything you do to improve your home that affects that home office, too, can be a tax deduction. If you have to replace the roof of your home, and your home office takes up 15% of the total square footage of your house, you can deduct 15% of the cost of the roof from your taxes.

Making sure you catch every tax deduction

When you're self-employed and working as a freelancer, an independent contractor or a gig worker, there are business expenses you might not even know are tax write-offs. Apart from claiming write-offs, you also have to remember to pay estimated taxes if your liability is over $1,000

Depreciation Tax Deduction

The depreciation tax deduction can be claimed for any asset that is used for business. There are three methods to calculate this deduction.

Everything You've Ever Wanted to Know About Tax Deductible Home Improvements

What home improvements are tax deductible?

Capital improvements

Can I write off home improvements after disasters

But are capital improvements tax deductible?

What's not considered an improvement?

Are home repairs tax deductible vs. are home improvements tax deductible?

Redecorating vs. correcting a design flaw

Are home improvements tax deductible this year?

Solar panels

Improvements to your home office

Making sure you catch every tax deduction

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