How to Know What Home Improvements Are Tax Deductible

If you’ve done home renovations in 2022 or plan to this year, it’s important to understand whether they are tax deductible. To begin with, it’s important to differentiate between tax deductions and tax credits. Tax deductions reduce your taxable income, while tax credits reduce the amount of money you must pay in taxes.

Home repairs, such as fixing a broken window or a leaking faucet, are not tax deductible except for home offices and rental properties. Home improvements, on the other hand, are tax deductible if they increase the value of your home. However, it’s important to note that not all home improvements are tax deductible, and it depends on whether they are classified as repairs or improvements.

For example, adding a new driveway, new roof, new siding, insulation in the attic, a new septic system, or built-in appliances are considered improvements that increase the value of your home and can be tax deductible. However, repairs that restore your home to its original state and/or value, such as replacing broken window panes or fixing a leaking faucet, are not tax deductible.

There are several home improvements that are tax deductible, including energy-efficient renovations, home improvements for medical care, home office improvements, rental property renovations, and home improvements for resale value. Energy-efficient renovations, such as installing solar panels, purchasing solar water heaters, using small wind turbines, and replacing exterior doors or windows with ones that meet Energy Star program requirements, can be credited on your tax return.

Home improvements for medical care, such as building entrance and exit ramps, widening hallways and doorways, lowering or modifying kitchen cabinets, adding lifts from one floor to another, installing support bars in the bathroom, and modifying fire alarms and smoke detectors, are fully-deductible expenses.

Home office improvements can be eligible for tax deductions as long as the space is regularly and exclusively used for business and your home is the principal place of your business. Rental property repairs are tax deductible within the year they are completed, while improvements, such as a bathroom renovation or kitchen remodel, depreciate over time.

Finally, major home improvements that increase your home’s value can be tax deductible when it comes time to sell your home. To ensure that you get the most out of your tax deductions, it’s important to keep track of all receipts and labor costs.

Be sure to consult with a tax professional to ensure you're maximizing your deductions and credits.