Which Home Improvement Projects Are Tax Deductible?
From keeping your home clean to spending time on landscaping, pressure-washing the driveway, and saving up for upgrades in the kitchen or bathroom, it is safe to say that you take pride in your home — as you should! When tax time comes around, it only seems fair that the money you put into keeping your home beautiful should count for something, right?
The short answer is that some home improvements are eligible for tax deductions, but not all. As you review the projects you have undertaken over the last year, it will depend on whether it falls under the “capital improvements” or “repair” categories. Hang onto those receipts! We will be reviewing the different improvements that you can plug into your tax software or hand over to your accountant to help keep more of your money.
Understanding Capital Improvements versus Repairs
Any work you have done on your home is generally going to fall into one of two categories: capital improvements or repairs. Which category the project falls under will determine whether or not it is eligible for a tax write off.
Capital improvements are projects that add value to your home. For example, installing a new swimming pool, building an outdoor BBQ station, adding central air conditioning, or replacing your windows with impact-proof ones.
Basically, anything that makes your home more appealing and increases the value probably qualifies as a capital improvement. These are projects that you can deduct when it comes time to file your taxes. On the other hand, repairs like fixing broken pipes or repainting the house are not considered improvements, but simply repairs. They are projects that you need to do to keep your home in running order, and they are not eligible for tax deductions.
3 Tax Deductible Home Improvements
So you might be wondering, which home improvements are tax deductible? Several home improvement projects fall under the umbrella of “capital improvements”. Here are three main types of home improvements that you absolutely can write off when filing your taxes.
1. Alternate Energy Home Improvements
As our communities work to be more eco-friendly, there are many incentives for homeowners to add energy saving elements to their homes.
If you have been thinking of installing solar panels, it is generally better to do it now than later. The federal solar tax credit currently allows you to deduct 26 percent of the installation cost, but that percentage will decrease as each year passes. Starting in 2023, the percentage will drop to 22 percent. Back in 2019, the percentage was 30 percent. In 2024, the tax break will be 10 percent and only commercial solar will be eligible. Be sure to also explore the Database of State Incentives for Renewable Energy (DSIRE) for incentives at the state level.
You might be thinking, what about my low flow toilets and energy-efficient appliances? Unfortunately, those do not count as alternate energy improvements as of 2022.
2. Medical Home Improvements
If you or a family member in the home requires home improvements to accommodate a medical condition, it can be considered for a write off on your taxes as a medical expense.
Sometimes, a home improvement for medical accommodation can also increase the value of your home, such as installing an elevator. In this case, it can be considered an improvement. Your swimming pool could even be considered a medical expense. However, the improvement project must be something that you can prove a doctor prescribed as necessary for your health.
3. Home Office Improvements
With more people working from home and establishing home offices, you may be relieved to know that you can write off workspace improvements. If you have a free-standing space on your home property, such as a greenhouse, art studio, or workshop, this also counts for deductions. But just like other write offs for your home office, it must be a room that is 100 percent dedicated to being an office. It cannot simply be a corner of a play room or using the dining room table as your work desk!
Writing off capital home improvements when filing your taxes each year can be a huge win-win for your household. You will be able to reap the benefits of renovations and boost your home’s value, while earning tax deductions at the same time! As always, Modernize is here to help with home improvement projects you may want to start this year. Use Modernize to connect with a home improvement professional in your area.