Yes, home improvements are typically an expensive investment, but with the incentive of a tax deduction, that price tag doesn’t seem so daunting.
While some tax-deductible home improvements are fading away, there are still a few that are worth looking into, including:
Below, we’ll look at each of these deductions in more detail, so you can get a better idea of whether or not your next project could save you some money.
Tax Deduction #1: Accessibility/medical updates
Generally speaking, if you make updates to your home for medical or accessibility reasons, it’s tax-deductible.
That being said, there are a few stipulations that make a medical update fully deductible:
- The main purpose of the improvement needs to be to provide care for you, your spouse or a dependant.
- The update or updates cannot increase the value of your home.
For example, the following improvements would be considered fully tax-deductible if their main purpose was to provide care for you, your spouse or a dependant:
- Widening hallways and doorways to make your home wheelchair accessible
- Adding ramps to entryways and exits
- Inserting railings/support bars in showers or near bathtubs
- Lowering kitchen cabinets
- Installing a porch lift
Improvements that serve a medical purpose but also increase the value of your home are still considered tax-deductible, they are just not fully deductible. For more information and advice on how much of a project’s cost would be deducted from your taxes, you should contact a professional tax advisor.
Tax Deduction #2: Energy-efficiency improvements
Installing certain energy-efficiency systems in your home could save you money. These specific systems include:
- Geothermal heat pumps
- Fuel cells
- Small wind turbines
- Solar energy (water heaters and solar panels)
An important distinction to note here, though, is that installing one of the systems above won’t result in a tax deduction but rather a tax credit.
What’s the difference?
A tax deduction reduces your taxable income whereas a tax credit is subtracted from your tax liability (the total amount you owe in taxes that year).
Keep in mind, however, that the tax credit provided for installing one of the energy-efficient systems is gradually decreasing every year.
Here is a breakdown from Energy Star:
- Systems installed before 12/31/2019: 30% tax credit
- Systems installed after 12/31/2019 and before 01/01/2021: 26% tax credit
- Systems placed in service after 12/31/2020 and before 01/01/2022: 22% tax credit
Of course, there are quite a few requirements that have to be made in relation to these systems to qualify for the renewable energy tax credit. These requirements can be found here.
Tax Deduction #3: Home office renovations
You may be able to get a tax deduction for home office improvements if:
- It’s your principal place of business (you spend more time there than in an office)
- It’s used exclusively for business (not as a guest bedroom or tv room)
Two different kinds of tax deductions for office renovations include:
- Deduction based on square footage- You can deduct $5 per square foot, up to 300 square feet
- Deduction based on expenses- You can deduct based on your costs for the space including updates & improvements, utilities, your mortgage, etc.
Tax Deduction #4: A kitchen remodel
Updating your kitchen can save you money on your taxes as this is considered a capital investment.
The tax break from a kitchen remodel will come in the form of a tax basis. That is, you won’t see savings on a home improvement until you sell your home.
But, just because you may not see the return until you sell your home doesn’t mean you shouldn’t invest in home improvements. Many homeowners opt to remodel their kitchen because it’s a quick, easy way to turn your home into a more appealing place to live.
In fact, our unique cabinet refacing/remodeling services often allows homeowners to completely transform their kitchen space in just 3 days—and at a fraction of a price of traditional remodels.
Other capital improvements that will count towards your tax basis include:
- Adding a swimming pool
- Remodeling a bathroom
- Adding a home security system
If you want to see a quicker return on your home improvement, consider carefully de-constructing whatever area of your home you’re improving (kitchen, bathroom, etc.) and donating the materials to charity.
The IRS will allow up to a $5,000 write off if you donate materials like kitchen cabinets, wood, countertops to a qualified 501(c)(3) charity, like Habitat for Humanity.
Learn more about how to donate your materials to a charity for a tax write-off, here.