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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 place 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.

Table of contents

Key takeaways...Read more

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

Capital improvements...Read more

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

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

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

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

Redecorating vs. correcting a design flaw...Read more

What home improvements are tax deductible in 2023?...Read more

Solar panels...Read more

Improvements to your home office...Read more

Medical renovations...Read more

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

Key takeaways

  • You can deduct home renovations and improvements as part of the home improvement tax deduction
  • If you upgrade your home with a capital improvement project, you can take a tax write-off for any associated costs
  • Any home repairs done on your home aren’t eligible for a home repairs tax deduction

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. The IRS 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, the IRS has 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.
Infographic entitled IRS Home Improvement Deductions listing the different types of tax deductions for home improvements
Now that we’ve answered the question, “Can you claim home improvements on your taxes,” let’s move on to the specifics.

Capital improvements

If you own a home, you're probably going to make capital improvements over time, whether intentional or not. So you might 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 improvement category and are considered by the IRS to be tax deductions for home improvements. The IRS considers things that give your property an upgrade or that prolongs its useful life, like putting a new roof on, to be in the same category. It has to last for more than one year to be considered a capital improvement. The same rule applies to anything that enhances the existing home, like solar panels, or adapts part of the home for new uses like finishing your basement.
Infographic entitled Deductible Capital Home Improvements listing the tax deductions for home improvements

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.

When are capital improvements tax deductible?

Changes like the ones mentioned above add to the value of your home, and when you sell it to someone, these 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?

Improvements are usually changes that make a property more valuable, functional or appealing. So, something not considered an improvement might be a change or addition that doesn't really boost the property's value, usability or aesthetics. This could include regular maintenance, repairs or alterations that don't have a big impact on the property.
Infographic entitled Deductible Home Improvement Or Not? listing examples for the home improvement tax credit

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 wouldn’t 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’re 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 are letting heat out all winter long, you'll probably hire a professional to make whatever structural changes are 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 and can’t be counted towards the home improvement tax credit. So, can you deduct home improvements? Yes, as long as you aren’t repairing something in your house.

What home improvements are tax deductible in 2023?

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. You might be asking, "Is a tax credit the same as a tax deduction". 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 add 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, can also 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.

Medical renovations

You might be wondering, for medical purposes, are home renovations tax deductible? If you make home improvements for medical reasons, such as adding ramps or widening doorways for accessibility, these costs may be partially deductible as medical expenses. The improvement needs to be reasonable based on the medical reason for adding the improvement. You can’t add something for architectural or aesthetic reasons. If you decide to put in a ramp because your dog is having trouble getting around, this instance isn’t deductible for the home improvement tax deduction. But on the other hand, if you need to put in a ramp and handrails due to your husband having reduced mobility due to a medical condition, you could deduct it.

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 the home improvement tax deduction, you also have to remember to pay estimated taxes if your liability is over $1,000.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

Meals Tax Deduction

The meals and entertainment deduction in 2023 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Rent Tax Deduction

Rent is tax deductible for self-employed individuals who work from home or have a separate office space. Some states offer renters tax credits to lower state taxes.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Professional and Legal Services Tax Deduction

Legal fees are tax deductible from 1099 taxes under the legal and professional fees category on Schedule C. The category also includes consultant and tax prep fees.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Taxes and Licenses Tax Deduction

Self-employed individuals can take the license fee tax deduction on taxes and licenses that are ordinary and necessary business expenses.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Utilities Tax Deduction

Utilities are tax deductible when they are an ordinary and necessary business expense. They can be claimed with the home office deduction or as a rental property deduction.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

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