If you’re looking to catch a break on your taxes, you might find relief under your own roof. Some home improvements qualify as tax credits, especially if they meet the IRS definition of “capital improvements.”
If that sounds tricky, don’t worry. We’ll walk you through the rules so you know exactly which home improvements are tax deductible and which aren’t so you can save with Uncle Sam while sprucing up your property.
In this article:
Yes, home remodeling can be a tax deduction. Before you jump for joy through your living room skylight, here’s what you need to know: The IRS has strict rules about the types of home improvements that qualify for a tax write-off.
In general, you can’t write off home repairs — general fix-the-top tasks like a fresh coat of paint or updating all the doorknobs on your bedroom door. While these duties can refresh the look and feel of your home, they qualify as general maintenance and preserve or restore your home to its original level.
Now, the good news: You could get a tax break when you make improvements beyond simple repairs. The IRS calls these types of renovations “capital improvements.”
The Tax Administration defines capital improvements to real estate as those that meet one of three criteria:
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It adds long-lasting value to your home
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Significantly extends the life of your home
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Adapts your home to a new purpose
These types of renovations add to your home’s price tag — its bottom line. For example, a coat of paint looks great, but doesn’t significantly change the market value of your home. On the other hand, adding an accessory dwelling unit (ADU) can significantly change the market value of your home when you go to sell. See the difference?
Let’s discuss this in more detail now so you can easily identify the home improvements that offer the best opportunity for future tax savings.
Dig deeper: Want to build an ADU or an in-law condo? Here’s how to finance it.
Now’s the time to jump through the skylight — many home improvements qualify as capital improvements. Here are some examples:
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Rearrangement of rooms. Kitchen and bathroom lamps are some of the most popular.
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Home accessories. A permitted garage, carport, in-law wing, deck or ADU can add value to a home.
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Landscaping. New patios, hard landscaping and permanent landscaping throughout the property can increase value and decrease curb appeal.
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Major interior upgrades. Floors, fireplaces and fresh insulation can add value.
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Structural improvements. A new roof, windows or siding fall into this category.
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System improvements. Heating, cooling and plumbing systems may qualify.
That’s a pretty neat list of tax-deductible home improvements, right? While most of these improvements aren’t cheap, all of them can increase your home’s value, livability, and functionality for years to come. However, these are not the only transformations that can help you earn tax credits.
Learn more: How much is your house worth? How to determine the value of your house.
All kidding aside, here’s where the IRS shines: It offers taxpayers a number of tax breaks and credits for various property improvements that may be outside of the capital improvements listed above.
If you, a spouse, or a loved one who lives with you requires physical changes to your home because of a disability, these expenses may be tax deductible. Some common medical additions that qualify under IRS guidelines include grab bars, ramps at entrances and exits to your home, widening doorways and hallways, and installing handicap elevator equipment.
You will need to itemize your tax credits to claim these costs. To be deductible, medical expenses must exceed 7.5% of your adjusted gross income (AGI).
Dig deeper: Standardized deduction vs. itemized deduction — how to decide which tax filing approach is right
If you use part of your home exclusively for work and you improve that space, you may qualify to deduct those costs from your taxes. The IRS rules on home office deductions are strict, and you can write off only that portion of whole-home improvements that directly relate to your dedicated office space. For example, if you repair your roof for $10,000 but only use 10% of your home’s square footage as a home office, your maximum deduction would be $1,000.
Our advice is to consult with a tax professional to ensure that your planned improvements to your home office comply with IRS guidelines. If you want a (not so) light read, you can also explore IRS Publication 587, Business Use of Your Home.
Read more: Who can claim a home office tax deduction?
If you have a rental property as your primary residence, you may be able to recover some of the annual repair and maintenance costs through depreciation when you file your taxes. Because rental income can be tricky, we recommend working with a tax professional to help you be on the right side of the IRS when determining the deductibility of any rental property improvements or expenses.
Using a home equity line of credit (HELOC), home equity loan, cash-out refinance, or renovation loan such as an FHA 203(k) home improvement loan could lead to tax savings. With these loan products, you can qualify for an interest tax deduction when you use the money to pay for capital improvements that qualify for the IRS.
Dig deeper: The mortgage interest tax deduction — how it works and when it makes sense
You may qualify for an annual tax credit of up to $3,200 if you make energy-efficient improvements to your primary residence. Credits include:
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Up to $1,200 per year in costs and improvements, including up to two exterior doors ($250 each), windows and skylights ($600 total) and home energy audits ($150 total).
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Up to $2,000 per year for eligible water heaters and heat pumps.
The improvements must be made in 2023 or later, and the credits extend through tax year 2033. Note that these are technically tax credits — not deductions — so they work a little differently.
Learn more: Tax credit vs. tax deduction — what’s the difference and which is better?
You can claim a clean energy home credit if you install qualifying clean energy equipment in your primary residence between 2022 and 2032. With this nonrefundable credit, you can claim 30% of the cost of improvements for things including, but not limited to, solar panels and water heaters, wind turbines , fuel cells and geothermal heat pumps. The installed equipment must be new. You can use Tax administration form 5695 ask for a loan. Again, remember that this tax break comes in the form of a credit, not a deduction.
Sometimes you can claim your home improvement tax credit quickly and regularly—for example, a tax credit for energy-efficient upgrades or interest paid on a HELOC that goes toward major repairs. But when it comes to capital improvements, it’s usually delayed gratification.
You usually can’t claim most capital improvements in the year you spend the money. Instead, these improvements increase the value of your home—a valuable number that affects your tax liability when you sell your home for a profit. These steps can help you track your expenses and claim tax credits.
Keep detailed records of every home improvement you make, including receipts, invoices, credit statements and contracts with contractors. If you make improvements over time, develop a filing system by tax year. Consider taking before and after photos.
As we explored above, some expenses may qualify for a current year tax credit. Here’s a good guideline: you can usually claim tax credits in the year the expenses are incurred. Most tax credits that increase the cost basis of your home (except medical deductions) cannot be claimed until the year you sell your home.
If you qualify for tax credits in the current year, you’ll claim those credits using the appropriate IRS form or schedule. If you use tax preparation software, the guided preparation option will usually help you identify your eligible credits and deductions for the current year and help you enter those numbers. If you have questions or are unsure how to claim your tax credits, contact a tax professional for advice so you don’t miss out on valuable savings.
Read more: How to file a tax return for free
Everyone wants to make money when selling their home. Fortunately, the IRS respects this and allows homeowners to enjoy a portion of that gain tax-free—provided they owned and lived in the home for two of the five years before the sale. Singles get $250,000 in tax-free earnings, and married couples filing jointly get double that — $500,000. Profits over and above these figures are subject to capital gains tax.
For the tax year 2024, the capital gains tax brackets are as follows:
Now let’s take a look at your home improvement tax savings in action.
Let’s say you bought a house in 2015 for $300,000 and completely renovated the kitchen five years ago for $50,000. If you sold that house in 2025 for a sweet $625,000, you’ll make a clean $325,000. If you’re single, $250,000 is tax-free — leaving $75,000.
Since you’re filing as single, the IRS says you get $47,024 at the 0% capital gains rate. Now you’re looking at a 15% tax bill on the remaining $27,976. But hold on.
That $50,000 you spent on a kitchen remodel is added to your tax base.
$300,000 (original purchase price) + $50,000 (kitchen remodel) = $350,000 (new cost basis)
Now your new income from the Tax Administration is:
$625,000 – $350,000 = $275,000
The IRS gives you $250,000 in tax-free profits.
$275,000 – $250,000 = $25,000 net profit
Then the IRS gives you up to $47,024 at the 0% capital gains rate, which is more than your $25,000 gain, making your taxable gain $0. That’s a big tax savings.
The original tax invoice without conversion that has been added to the cost base:
$27,976 x 15% = $4,196.40
A new tax bill with a remodel added to the cost base:
$0
Dig deeper: Real Estate Capital Gains Tax — How much you’ll pay when you sell your home
Yes, you can write off home improvements on your taxes if they meet the IRS’s requirements for capital improvements. Capital improvements must add long-term value to your home, extend its life, or adapt it to a new use.
In some cases, you can write off the new floors on the tax. Floors must be durable and meet IRS qualifications for a capital improvement, adding long-term value to the home. It’s best to consult a tax professional about specific IRS guidelines before assuming that new flooring will qualify for the deduction.
Renovations that qualify as capital improvements under IRS guidelines are not deducted directly from capital gains when you sell your home. Instead, these renovations are added to the cost basis of your home and subtracted from the sale price of your home to determine how much of your profit is subject to capital gains tax.
This article was edited by Laura Grace Tarpley.
