Wondering if home improvements are tax-deductible? Here’s the quick answer: most aren’t — at least not right away.
Depending on the type of renovation, you could qualify for valuable tax deductions or credits. Upgrades related to energy efficiency, medical needs or a home office could put money back in your pocket at tax time.
Quick Take
- Most qualifying home improvements are not deductible in the year you pay for them.
- Energy-efficient upgrades may qualify for tax credits.
- Medical or home office upgrades may qualify as tax deductions if Internal Revenue Service (IRS) rules are met.
- Capital improvements can lower taxes later by increasing your cost basis.
The 3 Ways Home Improvements Affect Your Taxes
The IRS generally sorts home improvement costs into three categories based on how and when they affect taxes.
Bucket 1: Not Deductible — Most Personal Upgrades
Unfortunately, most home improvements won’t reduce your bill when filing taxes. For a personal residence, the IRS treats everyday upgrades, like repainting living areas in the latest color or replacing fixtures, as personal expenses, which means they do not qualify for a tax deduction.
Bucket 2: Tax Credits — Energy Upgrades
Some home improvements qualify for federal tax credits instead of deductions, such as energy-saving home improvements. Examples are central air conditioners, insulation materials and hot water heaters, as long as they meet the requirements.
Tax credits reduce your tax bill dollar for dollar and are claimed in the year the project is placed in service.
Bucket 3: Not Deductible Now, But Can Lower Taxes Later
Capital improvements do not create an immediate tax deduction. However, they can lower your taxes when you sell your home by increasing your cost basis. Examples include a new roof, storm windows or an addition to your home.
Tax Deduction vs. Tax Credit: Why the Difference Matters
There’s a big difference between deductions and credits. For example, a $1,000 deduction reduces the amount of income that’s taxed, while a $1,000 credit reduces the tax bill dollar for dollar.
Here’s a quick cheat sheet:
| Feature | Tax Deduction | Tax Credit |
|---|---|---|
| What it does | Lowers taxable income | Lowers the tax bill itself |
| When it helps | Before tax is calculated | After tax is calculated |
| Typical examples | Medical expenses, home office costs | Energy-efficient upgrades |
| Common IRS forms | Schedule A | Form 5695 |
IRS Rules on Repairs vs. Capital Improvements
The IRS separates home-related costs into two buckets:
- Repairs: Not deductible
- Capital improvements: No immediate tax break, but can lower taxes when you sell
What Counts as a Repair
- Repairs keep your home in ordinary working condition and do not add value.
- Examples include fixing a leak or patching drywall.
What Counts as a Capital Improvement
- Capital improvements add value, extend the life of the home or adapt it to a new use.
- Replacing the roof or installing a new HVAC system generally qualifies.
Can I Deduct This? Home Improvement Tax Breaks at a Glance
This table summarizes common projects and how they are treated for tax purposes.
| Project | Tax Break? | Type | Key Rule | Where It Shows Up |
|---|---|---|---|---|
| Painting a room | No | None | Repair | Not deductible |
| New roof | No | Basis later | Capital improvement | Basis when sold |
| Solar panels | Yes | Credit | Qualifying clean energy | Form 5695 |
| Energy-efficient windows | Yes | Credit | Annual caps apply | Form 5695 |
| Medical ramp | Maybe | Deduction | -Medically necessary -Deductible cost is reduced by any increase in home value -7.5% adjusted gross income (AGI) threshold |
Schedule A |
| New home office flooring as a part of a repair | Yes | Deduction | Business-only space | Schedule C |
Home Improvements That Can Qualify for Tax Credits
Energy Efficient Home Improvement Credit
The energy efficient credit covers up to 30% of costs — subject to caps:
- Windows: Up to $600
- Doors: Up to $500 total or $250 per door
- Insulation: Up to $1,200
- Heat pumps and water heaters: Up to $2,000
This credit applies to improvements made after Jan. 1, 2023, through Dec. 31, 2025.
Residential Clean Energy Credit
Covers 30% of the cost of eligible systems installed between Jan. 1, 2022, and Dec. 31, 2025, like:
- Solar panels
- Geothermal heat pumps
- Battery storage — beginning in 2023
- Solar water heaters
This credit must be claimed for the year the product is installed, not purchased.
Medical and Accessibility Improvements
Medically necessary renovations — like adding a wheelchair ramp or widening doorways — may qualify as medical expense deductions.
Note: You can only deduct the portion that doesn’t increase your home’s value. These go on Schedule A of your tax return and must exceed 7.5% of your AGI.
Home Office Improvements
For home office improvements, there are two big requirements:
- Must use part of your home exclusively and on a regular basis as your principal place of business
- Self-employed — not strictly a W-2 employee
What’s Deductible vs. Not
- Repairs and maintenance that apply only to the home office space are considered direct expenses and are deductible.
- Improvements that add value or extend the life of the home office generally must be capitalized and recovered over time through depreciation.
- Improvements that affect the entire home are considered indirect expenses and only the business-use portion may be depreciated.
Rental Property Improvements
- Repairs you may deduct now: Ordinary repairs, such as fixing plumbing issues or repainting between tenants, are deductible in the year paid.
- Improvements you generally depreciate over time: Major improvement expenses must be capitalized and depreciated over time rather than deducted immediately.
- If you rent out part of your home: Only the rental portion of expenses qualifies. Personal-use portions must be excluded.
Capital Improvements Can Lower Your Tax Bill When You Sell
Capital gains tax is based on your profit from the sale. Increasing your home’s cost basis — generally what you paid plus qualifying improvements — can reduce the taxable gain.
How To Claim Home Improvement Tax Breaks
You can follow these steps to claim applicable tax breaks:
- Save every receipt: Track materials, labor and any documentation of medical need or energy efficiency.
- Use the correct forms: Use Schedule A for itemized deductions and Form 5695 for energy credits.
- Keep documentation: Records should be retained as long as the improvement affects your tax situation.
State and Local Tax Rebates
Some states or utility companies offer rebates that can lower out-of-pocket costs.
Federal incentives include the Residential Clean Energy Credit, which equals 30% of the costs of new, qualified clean energy property for your home installed anytime from 2022 through Dec. 31, 2025.
Common Mistakes and How To Avoid Them
- Assuming all renovations are deductible: Only capital improvements that add value, prolong life or adapt the home count toward cost basis.
- Confusing repairs with improvements: Repairs maintain a home while improvements increase its value or usefulness.
- Claiming a home office deduction without qualifying: Meet the regular and exclusive use tests before claiming it.
- Failing to keep verifiable records: Save receipts, contracts and before-and-after documentation for improvements.
Key Takeaways
- Most home improvements are not tax-deductible in the year you make them.
- Energy-efficient upgrades may qualify for credits.
- Home office and medical upgrades follow strict rules.
- Capital improvements matter most when you sell.
FAQ
Here are the answers to some of the most frequently asked questions about if home improvements tax deductible and how exactly it works:- Are home improvements tax-deductible?
- Most home improvements are not tax-deductible because the IRS considers them as personal expenses. However, certain improvements may qualify for tax credits, itemized deductions or reduce taxes later by increasing your home's cost basis — aka a capital improvement.
- Is painting tax-deductible?
- Painting is generally considered a repair, not a capital improvement. Painting a personal residence is not tax-deductible, but painting a rental property may be deductible.
- Is a new roof tax-deductible?
- A new roof is not deductible in the year it is installed on a personal residence. However, it typically qualifies as a capital improvement and can increase your cost basis, which may reduce taxable capital gains when you sell the home.
- Can I deduct a new HVAC system?
- A new HVAC system is generally not deductible as a personal expense. However, it may count as a capital improvement that increases your home's cost basis.
- Do windows or doors qualify for a tax credit?
- Some energy-efficient windows and exterior doors may qualify for the energy efficient home improvement credit as long as they were installed between 2023 and 2025.
- Are accessibility upgrades deductible?
- Accessibility upgrades may be deductible as medical expenses if they are medically necessary, you itemize deductions, and total medical expenses exceed 7.5% of your AGI.
Rudri Patel contributed to the reporting for this article.