A lot of people wonder if the home improvements and home repairs they perform on their house over a year are tax deductible or eligible for any money back on income taxes at the end of the year. Most people know that many of the home improvements which improve the energy efficiency of your home are eligible for some sort of tax deduction or tax credit, though each year the amount of money you can deduct gets smaller and smaller. But there are other types of home improvements that have nothing to do with energy efficiency that may also help reduce your income taxes in the year those improvements were finished.
Overview of Tax Credits and Deductions for Home Improvements
Generally, there are three ways a home improvement might benefit you financially come tax time. You may be eligible for some sort of income tax relief if:
- Your home improvements are being performed for medical reasons
- Your home improvements include certain energy-efficient upgrades to your home
- You are going to be using a home equity loan or home equity line of credit to actually pay for your home improvements
Before we get into those three scenarios, let’s discuss the basics of how home improvements work with taxes in the United States.
Home Repair vs. Home Improvement
First, it’s important to remember that there is a difference between home repair and home improvements, especially from an income tax perspective. Simply fixing things that are broken or worn out around your home are generally considered “home repairs” and generally do not count towards any sort of tax deduction or tax credit. However, if you replace something that is worn or broken with something new (such as more energy efficient windows or doors), then that may be seen as a home upgrade or home improvement and contribute to your tax refund.
The good news is that if you need to perform a home repair at the same time or in the same area of your home as the home improvement, then you may be able deduction the cost of the home repair on your taxes. The difference between a repair and an improvement on your home is not always cut and dry so your specific situation may dictate exactly how you can count certain home projects on your taxes.
Getting Your Home Improvement Tax Deductions and Credits
The way home improvement contractors advertise the tax credits for energy-efficient appliances and upgrades you’d think that the Federal Government simply mails you a big check whenever you have one of these home improvements done on your home, but it doesn’t work that way. You will have to pay the full amount up front for any home repair or improvement you do, including paying for the materials and labor. After you’ve paid the bill in full and you have a receipt from the contractor for the work done you are ready to receive your credit.
But first you have to wait for the calendar year to end. Once January or February rolls around and you’re filing your income taxes for the previous calendar year you’ll have to pull out that contractor’s receipt and enter it on your tax forms. In most cases the materials for the home improvement can count as a taxable expense, but the labor you paid the contractor does not. Make sure your contractor splits that out on his or her receipt. If you did the work yourself then you should be okay because you’ll probably only have receipts for the materials and supplies.
After entering that amount on your tax forms you or your accountant will run the calculations and you may receive a larger tax refund at the end of the year. So your home improvement tax credit will not come in the form of an outright check, but it will be built into your tax refund or it will lessen the amount of income taxes you owe.
Home Improvement Tax Deduction vs. Home Improvement Tax Credit
It’s also important to remember that there are different ways to increase your income tax refund with home improvement projects. In some cases you may be eligible for a tax deduction and in other cases you may be eligible for a tax credit. The difference could be substantial.
A tax deduction lowers your “taxable income” amount while a tax credit takes a set amount right off the taxes you owe. So If you make $30,000 per year and you get a $1,000 tax deduction then the government is really only taxing you on $29,000. The amount you get back from a tax deduction depends on your income tax bracket. If you’re in the 30% income tax bracket then a $1,000 tax deduction means you’d “get back” about 30% of that money in a tax refund. In this case it would be about $300.
If you get a $1,000 tax credit then are are still being taxed on $30,000 but you get to take $1,000 off the amount you owe the government (if you are getting a tax refund then you might get an extra $1,000 back!).
If you have an account or use any sort of income tax software to do your taxes, you shouldn’t have to worry too much. They can take care of the math and some of the tax software programs will even look at a couple different scenarios and pick out the one that is most beneficial to you.
Home Improvements for Medical Reasons
If you or someone living in your home has a medical condition that warrants a home remodeling or home improvement, then the cost of that project may be able to count towards a tax deduction. You will most likely need a doctor to write a letter stating what improvements are needed to your home for medical conditions and why, you will need to itemize the your deductions and keep track of the work being done with a breakdown of costs and the project will have to be 7.5% or more than your annual adjusted gross earnings for that year.
Here are some of the medical conditions that often require home improvements or upgrades to a home that could be tax deductible:
Home Improvements for Wheelchairs: People suddenly needing a wheelchair must often perform extensive work on their home to make it more livable. Some home improvement projects that could qualify for tax deductions in this case are adding elevators, widening doorways, adding wheelchair ramps, lowering kitchen cabinets, installing bathroom handrails and even lowering light switches.
Home Improvements for Allergies or Breathing Problems: People with breathing issues are often told by doctors to improve their home’s air filtration system, install central air-conditioning and remove and replace any drywall that may be damp and moldy.
Home Improvements for Other Physical Ailments: Other ailments or injuries requiring physical rehabilitation could also warrant specific tax deductible home improvements such as hot water spas, therapeutic swimming pools or other additions to a home to accommodate special medical equipment.
IRS Publication 502 has more detailed information about exactly what may and may not qualify for a medical home improvement tax deduction.
Home Improvements to Increase Energy Efficiency
For 2011 and 2012 most of the energy conservation tax credits and deductions from the past have been extended and are still active. In 2008 there were a number of energy efficient upgrades that were no longer eligible for tax credits or deductions (they were part of the 2005 Energy Policy Act), but many of those items are once again eligible for tax credits in 2011 due to the new American Recovery and Reinvestment Tax Act of 2009. There are lots of different options, but now tax credits are available for 30% of the cost of certain energy efficient upgrades, up to $1,500 in many cases! That means that if you spend $3,000 in qualified energy efficient home improvements, you could get a tax credit of about $1,000 (30% of $3,000). This is a big improvement over the previous energy efficient home improvement tax credits available in the past. So, in theory, you could spend up to $4,500 in qualified energy-savings home improvements and receive a maximum of $1,500 back on your federal income taxes.
Home improvements and upgrades to increase your home’s energy efficiency are numerous and constantly changing. It’s actually difficult to keep track of all the rebates and tax incentives you may be eligible for because there are federal regulations, state regulations and even separate utility rebates available in some cases.
Some examples of energy efficient home improvements for existing homes that could impact your year end income taxes:
- New energy-efficient windows and doors
- Adding new insulation
- Upgrading to a metal or asphalt roof (Metal and Asphalt)
- Upgrading to a more energy efficient air conditioning or heating system
- Newer non-solar water heaters
- Purchasing a biomass stove
It is important to remember that you can only consider the cost of the products you are installing and not the additional installation cost. Other home improvements that are eligible for tax credits for new and existing homes that extend into 2016 are:
- Geothermal heat pumps
- Installing solar water heaters
- Installing solar panels
- Installing wind energy systems or fuel cells
There are, of course, some restrictions on exactly what is eligible for the home improvement tax credit and what isn’t. Before you purchase any new items or upgrade your home you may want to read all the details of the recently updated Federal Government Energy Star Tax Credit program.
Additional Home Improvement Tax Savings
There are other ways home improvements can save you money when you file your income taxes. Firstly, if you borrow money from a home equity loan or a home equity line of credit then you may very well be able to use the interest you paid on the loan as a tax deduction. This is just like using the interest you pay on a mortgage loan as a tax deduction, and obviously the larger the home improvement loan, the more money you’ll pay in interest (and the more you’ll be able to deduct at the end of the year).
The other way to use a home improvement to your advantage is to donate any extra materials or supplies at the end of your project to a registered non-profit. If, for example, you’re installing new hardwood floors you probably would not be able to deduct the cost of the wood because it isn’t an energy savings, but if you had several hundred dollars worth of wood left over (which is quite possible) then you could donate that to a non-profit school or church that could use it for a project. Be sure to keep receipts and give the wood a real market value when you use your donation as a tax deduction.
And, of course, most larger home improvements impact the value of your home positively, so if you’re trying to sell your home any home improvement could affect the selling price and appraisal value, though some home improvement projects do affect the value of your home more than others.
Overview of Home Improvement Tax Deductions
Overall, you can count some home improvements as a tax credit or tax deduction if:
- They are for legitimate medical reasons
- They purchase qualifying energy-efficient products (the items and rebates change annually – See the Energy Star Website for details and expiration dates)
Some items that are home improvement related but are generally NOT eligible for a tax deduction or tax credit:
- Labor costs for installing or repairing any home product
- Costs for any sort of service
- Landscaping or gardening services or products (trimming trees, planting flowers, improving water retention in yard)
- Interior design projects (paint, wallpaper) or flooring upgrades (hardwoods, tile)
- Exterior design projects such as new siding or paint
- Adding sheds or additional storage
- Emergency utility or other types of repairs (though your local municipality, state, or utility company may offer some rebates)
You may also be able to use your home improvement project to deduct additional interest or donated amounts from your taxable income at the end of the year. Everything above is included for informational purposes, but obviously your tax and financial information may affect how much of these credits and deductions you can really use. Before you do any home improvement you will definitely want to speak to a qualified tax accountant to see exactly how certain projects will impact your income tax payments.
I personally use Turbo Tax to do my own income taxes
It really can pay to start that home improvement project this year! Under the right conditions a home improvement project completed this year could lead to big home improvement tax credits and deductions when you file your taxes next year!
[...] You should talk to an income tax professional or research some of the details surrounding home improvement tax deductions before you embark on any home upgrade or remodeling [...]
I have question not a comment.I just remodel my home is how can i recieve money back on my tax refund for home improvements.
Can painting the exterior of your home be considered an “improvement” that could be eligible for a tax credit?
Ralph,
I don’t think the federal government will allow you to use painting your house as an improvement. Most home improvements that are tax deductible or eligible for a tax credit are energy or health related. I painted my house this summer and I do not plan on listing the materials or supplies anywhere on my tax forms.
However, you may be able to get some sort of money from your local township or even state if they happen to offer some sort of special local home improvement grant or tax incentive as some cities and municipalities do. There are probably hundreds of such programs across the United States, so it’s ultimately up to you to find which ones exist where you live. Good luck!
We installed hardwood floors in our home, replacing the old carpets. Is this tax deductible?
Sharon,
I’m not a tax expert, but I don’t think I’ve ever read anything where hardwood floors would be a home improvement that is eligible for a tax deduction of any kind. You should probably speak with a qualified tax accountant to be sure.
I replaced all of my windows,boiler,installed insulated siding,and replaced my roof in 2007.can I claim these improvements for this year,or should I ammend my return from last year?
Sahron, hardwood floors would qualify if you have allergies and you removed the carpeting due to those allergies. To CYA, get a doctors note.
Home improvements that don’t qualify for tax credits or medical credits are only deductible in most states when you sell your house. Home improvements will reduce your capital gain, so my advice is save your receipts!
We sold our house this year and we had to replace the original gas pipe to the house that was pitted and cracked. The new pipe of course is going to save energy just because it doesn’t leak and will last another 50 to 70 years. Do you know if we will be able to get the full amount of cost for gas pipe replacement purchase back when we file our taxes?
Angela,
I’m not a tax expert but I’m pretty sure that replacing a gas pipe won’t get you any sort of deductions. If anything, your home inspector should have spied the pipe and maybe help you work out a deal with the seller to pay for the fix.
I had vinyl siding put on my house because the masonite siding was rapidly falling apart (I have only owned the house for 18 mos). Is there a tax deduction for this repair/improvement?
I received a home improvement grant this year that replaced,wndows, doors, heat pump, and roof in my house. Can I claim these improvements on my taxes even though the work was done through a grant?
Dawn,
You may want to check with your tax professional, but there’s no simple explanation for how home improvement grants count on one’s income taxes. In many cases you may actually owe tax money on the income from the grant. Really, spend the money one some peace of mind this year and have a qualified tax accountant take a look at your situation. Good luck!
Does the purchase and installation of a large storage shed on your property qualify as a home improvement and qualify for a tax deduction
I have to replace the whole sewer line in my house. Is that tax deductible?
I took the 1500 tax credit last year for replacing my roof on my home. This year I replaced all of my windows with the low-E rated windows which would qualify for the deduction, but sice i took the credit last year I cannot take it this year. My question is: How can I take the windows improvemnt this year and get some type of AGI adjustment to lower my tax burden?
I had to get a home equity loan for fifteen thousand dollars to install a new septic system at my house because rules and regulations has change in our county and mine was not up to code . Can any of this money be deducted?
Does bricking in a home, replacing the skirting on a home that would let the heat escape, able to be deducted?
Cheryl,
Unlikely but you can always check with a tax adviser to be sure. Most energy efficiency tax deductions come from installing or using products that are specially designed explicitly for energy savings. It’s pretty well regulated, so things like insulation, new energy-efficient windows and doors and home appliances are the most common tax deductions when it comes to saving energy.
Your article “home Repair versus Home improvement” is a very good one thanks
Hello – great article…thank you for the contribution.
We just purchased an aluminium patio cover for our 12×20 concrete slab (where direct sunlight comes through our arcadia 8 hours a day); it blocks out heat in
the summer and yet allows sun through (w/ our UV-rated panels) in the winter etc., would this
therefore qualify as an “energy efficient” upgrade for tax purposes? It certainly will impact the efficiency of our energy consumption. Thanks in advance for your feedback.
Joe,
I wish I could say “Yes!” but I don’t think I can. Just because something is energy efficient and saves money doesn’t mean it will definitely qualify for a tax credit or deduction. Each year the Federal Government scales back the amount of money they all you to deduct.
Up to $500 for the materials of a metal roof can be deducted, but I think they need to be on your main home, not over a patio. You can read about the latest home improvement tax credits from the official Energy Star website.
I had an additon added to my house so that my father could live with me because he in no longer able to take care of himself. Can I take this addition or at least portion of this addition as a deduction/credit? Which form do I need to fill out?
Thank you in advance!
My house gets cold, humid, and molds are everywhere in winter time. According to the contractor, it is because the lack of sealing on the exterior wall. So I paid to do that. Is this a tax deductable?
Zena: Hard to say, but you may want to speak to a tax adviser about that. I would guess that it does NOT count because the tax credits seem to be tied to specific products (high efficiency furnaces, water heaters, energy efficient windows, etc.) and not to specific services. The labor costs for a job like that would not be tax deductible, but there’s a small chance that the insulation or sealant is. Good luck!
Hello,
Last year, I improved my driveway by repaved my driveway and created a new turn around spot b\c I live on a very busy street. Are there any tax deductions for this upgrade?
Thanks
Robin
Robin,
Welcome! I’m not a tax expert, but I’m not aware of any sort of tax deductions you can take for changing or repaving a driveway. Sorry.
My home was damaged in the May 22 2011 tornado in Joplin Mo. I had to pay some money out of my pocket over and above ins in order to make my home livable again. Is any of it tax ded??
Tom, we live in a rural area in a house built in 1877. The existing well was a hand dug well and it went dry two years running in the fall after a drough condition. We had a new deep well drilled, which amounted to 18,000 dollars. Is any portion of the cost tax deductible?
I had soffit installed all around the outside of the house due to damage caused by carpenter bees. Would this be considered a tax credit or deduction for home improvement?
Hi,
I had to buy a water softner system for my house because the water was so full of iron.. Can I deduct the water softner system on my taxes as a home improvement because it does add to the life of the house by saving me from having to replace all the appliances more often than I would like to..
I paid $600 to get my trees trimmed..can I use that as a tax deduction for home improvements?
Hi, I did a complete remodel of my home this year. I know that I can deduct up to $500 for energy efficient materials but can I also deduct the labor and/or taxes paid for the energy efficient materials?
Thank you