Emily and Jack decided to give their kitchen a fresh remodel to create a larger space where the family could gather and cook together. As the project took shape, so did the idea of potentially saving some money on their taxes. Like many homeowners, they wondered, “Can we claim these renovations on our taxes?”
Unfortunately, the answer in this case is a hard no. While home renovations can significantly boost a property’s value and make it more functional and enjoyable, the IRS isn’t always as generous when it comes to offering tax deductions for all improvements. However, there are some new tax rules on home renovations that could work in your favor when you give your home an upgrade:
Home improvements that are tax deductible
Home offices for businesses and the self-employed
During the pandemic, many homes became offices by default—and some stayed that way as more people continued to work from home. If you dedicate a specific part of your home solely as a workspace, you may be able to claim a home office deduction. This tax benefit allows you to claim a portion of your housing expenses (relative to the size of the workspace) against your taxable income, including mortgage interest, property taxes, and utilities.
Remember that this tax break isn’t automatic. The space must be used exclusively and regularly as your principal place of business. If you’re eyeing a renovation that could double as a home office, it’s worth crunching the numbers to see if this deduction applies to you.
Necessary medical improvements
Steven needed to make significant changes to his home after knee surgery. Installing a wheelchair ramp and widening the hallways were necessary improvements that ensured he could move around his house safely. The good news? These modifications might be deductible as medical expenses, provided they meet the IRS’ criteria.
The key is that these improvements must be essential for accommodating medical needs and must be made for someone who permanently resides in the home.
Here are some of the medically necessary home improvements the IRS allows you to deduct:
- Installing ramps for entering or exiting the home
- Widening doorways
- Modifying hallways and interior doors
- Adding bathroom modifications like railings and support bars
- Lowering kitchen cabinets for accessibility
- Relocating electrical outlets and fixtures
- Installing porch lifts or other lift systems
- Upgrading fire alarms and smoke detectors
- Altering staircases
- Adding handrails or grab bars
- Changing door hardware for ease of use
- Grading the property to improve access to the home
Energy-efficient additions or equipment
Recent changes under the Inflation Reduction Act of 2022 have introduced new opportunities for tax breaks on energy-efficient home improvements. These breaks are designed to encourage homeowners to reduce their carbon footprint, and many of them kicked in starting in 2024, and lasting through 2032.
To take full advantage of these credits, start with a home energy audit. This audit is not just a recommendation but a requirement for many of the new tax credits. The audit will help you identify which improvements could make your home more energy-efficient and, in turn, qualify for tax savings.
For example, if Jack and Emily wanted to take advantage of tax credits for energy-efficient upgrades, they could have considered installing solar panels during their kitchen remodel. Energy-efficient tax credits can cover up to 30% of the costs for qualifying improvements like solar panels, heat pumps, or energy-efficient water heaters.
Rental property improvements
Rental property improvements can be tax deductible, but they are typically depreciated over time rather than deducted immediately. Major upgrades, like a new roof or kitchen remodel, are considered capital improvements and must be depreciated over the property’s useful life. Routine repairs and maintenance, such as fixing leaks or repainting, can be deducted in the year they are made.
The deductions apply to renting out any property, whether it’s a house, apartment, Airbnb, or even a room in your home. For instance, if you rent out your guest suite as an Airbnb, you might be eligible for deductions related to home improvements tied to the rented portion of the property. If you install a kitchenette in the suite, for example, the upgrade could qualify for full depreciation, reducing your taxable rental income.
You may also be interested in: Step-by-Step Guide: How to find the right contractor for your home renovation in Jacksonville
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Home improvements that are not tax deductible
Before you start drafting big home renovation plans, it’s important to know that not all improvements will get you tax relief. As Jack and Emily learned, many common home projects don’t qualify. Here’s a list of improvements that won’t help you save on taxes:
- New roof
- Air conditioner replacement
- Home security systems
- Kitchen or bathroom remodel
- General home repairs (e.g., fixing gutters, painting, etc.)
The silver lining: home improvements = increased home value
Even if you can’t deduct most home improvements, renovations can significantly boost your home’s market value, as well as your basis in the property. Kitchens and bathrooms are top priorities for buyers, so improvements in these areas could lead to a higher selling price, helping you recoup some, if not all, of your renovation costs. For instance, while Jack and Emily’s new kitchen won’t lower their tax bill today, it could make their home more appealing—and valuable—when it’s time to sell. Not to mention the enjoyment they’ll gain from a bright and beautiful new space.
At John Merrill Homes, we believe in building dream homes that are functional, beautiful, and, when possible, financially fruitful. If you have questions about home improvements or are ready to start your next project, we’re here to help.
