Are Home Improvements Tax-Deductible?

What counts as a home improvement? 

Home improvements and home repairs are different from each other:

• A home improvement, also known as a “capital improvement”, is something new you add to increase your home’s value — for example, building a deck or adding a swimming pool
• A home repair is something you do to fix an existing part of your home, like repainting a room or repairing a broken AC

Can you deduct both home improvements and home repairs?

It’s likely, as long as you’re self-employed and work primarily from home. As long as you use your home for business, you can potentially write off both home improvements and repairs.

If you’re a freelancer with a home office, use Keeper to track the deductions you get as a result. Not sure exactly which costs you can write off? Don’t worry — the app can help you identify them with AI, and you can also chat with one of our professional tax assistants to find out. 

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What can you deduct if you’re not self-employed?

If you’re not self-employed, you’re going to have a hard time writing off regular home repairs. However, your home improvements can save you money on your taxes if they’re medically necessary or environmentally friendly.

The exception is repair work for damages caused by natural disasters that aren’t covered by insurance. Even W-2 workers can claim those on their taxes. 

What kind of tax savings can you get for home improvements?

There are two types of tax breaks you can potentially get for your capital improvements. In some cases, you can qualify for a tax deduction, but in other cases, you might qualify for a tax credit. Here’s the difference:

• A tax deduction decreases the income you pay taxes on, reducing your tax burden
• A tax credit directly lowers the amount of taxes that you owe — or increases the refund you’re given

In most cases, the tax savings you get for home improvements will be deductions, not credits.

How to claim a tax deduction for your home improvements

If you’re a freelancer, you can deduct your home improvements through the home office deduction.

Who can claim a home office deduction?

To claim this deduction, you’ll need some sort of 1099 income. You’ll also have to have a dedicated home office space where you do your work. And no, a couch doesn’t count. I asked Michele Cagan, CPA. 

“According to the rules, you must use it regularly and exclusively,” she said. The “exclusively” means you’re only using it for work — which means your couch is out.

What kinds of projects qualify for a home improvement deduction?

According to Cagan, all kinds of home improvement projects can qualify for the home office deduction. That includes projects that cover your whole house — not just the room (or part of a room) you use as your office.

Deducting whole-house vs. office-only improvements

Whole-house projects, like replacing the roof or the HVAC system, need to be depreciated. That means you’ll split the write-off you get across several years instead of taking it all at once.

However, smaller upgrades, like replacing the carpet or adding new paint, can be deducted entirely the year you make the improvement. 

What kinds of projects can you not deduct?

Home improvement expenses aren’t tax-deductible if they’re solely for spaces that you also use for personal purposes.

For example, while a kitchen reno is amazing and freshens up the space, it’s not a business expense and can’t be deducted from your taxes.

That’s true even if you work as a caterer and make delicious meals for your clients from home. Because you use the same kitchen to cook your own dinners, renovations to that space can’t be written off.

Are there any other limits to the home improvement deduction?

Home office expenses — including home improvements — can’t be used to create a business loss. You can use it to lower the amount of money you’re taxed, but not to the point that your taxable income goes negative.

For example, if you earn $30,000 from business but have $40,000 in deductions, you can only bring your taxable income down to $0, not -$10,000. (Other types of business expenses would let you claim the $10,000 loss.)

So what happens if you pay for an expensive reno and can’t deduct the whole cost because it would lead to a loss? “Any portion you don’t use this year, you can push into next year,” said Cagan.

Where do you write off your home office improvements? 

There are two forms you may need to fill out, depending on how you claim your home office deduction:

• Actual expenses method: With this method, you’ll claim a percentage of what you actually pay for home office expenses — in which case you’ll fill out Schedule C and Form 8829
• Simplified method: With the simplified home office method, you’ll claim $5 per square foot in your home office — in which case you’ll only fill out Schedule C

Schedule C: For everyone

Everyone needs to file a Schedule C form in order to claim home office deductions. This is the form used to report all your freelance income and business expenses — including any deductible home improvements. 

The specific line for home office expenses is line 30. If you use the simplified method, you’ll have a fix extra lines to fill out. 

Form 8829: For people using the actual expenses method

Form 8829 is specifically for home office expenses. You won’t need to fill it out if you’re using the simplified method.

Your repairs and maintenance will go on line 20.

What other home expenses can you write off?

“Any expense you have living in the house [can be partially written off],” Cagan said. That means all the utilities for the house, including a portion of your:

• 🌐 Internet
• ⚡ Electricity
• 🚰 Water
• 🗑️ Sanitation
• 🧽 Maid service

You can also write off “any household expense that is related to the house itself,” such as:

• 🏡 A homeowners association fee
• 💵 Property taxes
• ☔ Renters or homeowners insurance
• 🛡️ A security system

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Can you deduct home office improvements as a renter?

Yes, if your landlord allows you to fix up your space. 

“If you’re renting an apartment, you can take a portion of that [rent] too,” Cagan said. “The only thing you can’t do is whole-home improvements.” That’s because those improvements need to be depreciated, which you can’t do if you don’t own the home. 

As a tenant, though, you can still have a home office, and you can get tax deductions for having a home office. Anything you pay to live in that space would count toward the home office expense — including the same utilities you can claim as a homeowner. 

Can you deduct home office improvements as a side hustler?

Yes, you can! If you own your home and have a business on the side that you work on from a home office, you can still take advantage of these tax deductions. You just need a qualifying home office space. 

Overall, if you have a home office, you’ll be able to use business write-offs to lower your tax burden.

Can you deduct home improvements as a rental property owner?

Technically, no — at least not all at once. According to the IRS, if you’re a landlord, you “may not deduct the cost of improvements” to your rental property.  

However, you’re able to recover some of what those improvements cost you by depreciating them, starting the year you made the improvement.

Again, that means you’ll be splitting the cost of the improvement over several years instead of deducting it all at once.

How to depreciate home improvements to your rental properties

You’ll use Form 4562 for this. Fill out Part III, Section B of the form with the improvements you’re depreciating. 

As you can see, this section is split up based on the “useful life” of the assets you’re depreciating — meaning, how long they’re expected to last before they break down again.

There are established standards for the useful life of each property or improvement type. You can look these up in IRS Publication 527, which covers residential rental property. 

For example, carpet “used in a residential rental real estate activity” is depreciated over five years. Meanwhile, “structural components” — like a new waterpipe — are depreciated over 27.5 years.

How to deduct home improvements as medical expenses

If you have a medical condition that requires alterations to your house, you can deduct them. This is true whether or not you’re self-employed.

Unlike with home office deductions, though, you can only claim this tax break if you itemize instead of taking the standard deduction.

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What medical home improvements can you deduct?

Only medical improvements that don’t increase the value of your home can be fully deducted. Otherwise, you’re only able to deduct a portion of what they cost you.

Fully deductible home improvements

These include:

• ✓ Warning systems
• ✓ Outlets 
• ✓ Fixtures
• ✓ Wheelchair ramps 
• ✓ Railings 
• ✓ Other accessible modifications to your home

Partially deductible home improvements

With upgrades that increase your property value, you can only deduct the difference between the cost of constructing the improvement and the amount it increases your home’s value. 

The primary example is a swimming pool built for medical reasons. For instance, if your pool cost you $35,000 to build and improves your home value by $10,000, you can deduct $25,000.

Where do you write off your medical home improvements?

You’ll put these with your other deductible medical expenses, on line 1 of Schedule A.

How to get a tax credit for energy-efficient home improvements

What’s super cool about home improvements is that, if they’re to make your home more energy-efficient, you can qualify for a tax credit of up to $3,200. You just have to live in the home you make them in, whether you rent or own.

In addition to home energy audits, qualifying improvements include:

• ✓ Doors, windows, and skylights
• ✓ Insulation
• ✓ Central AC
• ✓ Natural gas, propane, or oil water heaters
• ✓ Natural gas, propane, or oil furnaces and boilers

Unlike a deduction, this will directly lower your tax bill. Note that this credit is nonrefundable. That means that, once it brings your tax bill down to zero, you can’t pocket the extra as a refund.

How the energy-efficient home improvement credit works

If you pay for energy-efficient upgrades, the IRS can give you back up to 30% of what you spend at tax time. There are some limits on the amount you can claim for certain types of improvements:

• $250 per door (with a max of $500)
• $600 on windows
• $150 on home energy audits
• $2,000 on a qualified heat pump 

While there are yearly caps, there’s no lifetime dollar limit. 

Where do you write off your energy-efficient improvements?

You’ll fill out Part II of Form 5696, which is used for a couple of different residential energy credits. 

If you file through Keeper, we’ll help you claim them, so you lower your taxes at the same time you lower your carbon footprint.

Home improvement write-offs are “a confusing topic for a lot of people,” Cagan acknowledged. But “if you get it right, it helps your taxes now.” 

Now that you know how this deduction works, you’re armed with the knowledge you need to fix up your place and save at tax time.