When it comes to upgrading your home, many homeowners wonder whether the money they spend on improvements can offer any tax benefits. While most home renovations don’t qualify for immediate tax deductions, certain types of improvements can save you money when you sell your house or in the form of credits and deductions under specific circumstances.
This guide breaks down what the IRS considers deductible, what qualifies for credits, and how you can make the most of your investment.
What Counts as a Home Improvement?
A home improvement is any project that adds value to your property, enhances its usefulness, or extends its life. Common examples include:
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Adding a new bathroom or bedroom
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Installing a swimming pool
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Upgrading your kitchen
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Replacing your roof or windows
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Adding central heating or air conditioning
By contrast, repairs—such as fixing a leaky faucet or patching a roof—are generally not deductible because they are considered maintenance rather than improvements.
Are Home Improvements Tax Deductible Immediately?
In most cases, no. The IRS does not allow homeowners to deduct the cost of home improvements from their yearly income taxes. However, that doesn’t mean you won’t benefit from them financially.
Instead, improvements may:
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Increase your home’s cost basis – which reduces taxable capital gains when you sell.
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Qualify for tax credits – in cases such as energy efficiency or medical needs.
When Home Improvements Can Save You Money on Taxes
1. Capital Improvements and Home Sale
A capital improvement is an upgrade that increases the value of your home, adapts it for new use, or extends its lifespan. These expenses increase your home’s cost basis, which is the starting value of your property adjusted to include major improvements.
Selling your home results in lower taxable gains since a higher cost basis reduces the profit the IRS counts For example:
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You bought your home for $200,000.
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You spent $40,000 on a kitchen remodel.
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You sell the home for $300,000.
Your profit isn’t $100,000—it’s only $60,000 because the remodel increased your cost basis.
2. Energy-Efficient Upgrades
Some green improvements qualify for tax credits, meaning you can directly reduce the amount of tax you owe. Examples include:
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Solar panels and solar water heaters
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Geothermal heat pumps
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Energy-efficient windows, doors, and insulation
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Wind turbines
The Inflation Reduction Act expanded and extended many of these credits, allowing homeowners to claim savings for years to come.
3. Medical Necessity Improvements
If you make improvements for medical reasons—such as installing wheelchair ramps, widening doorways, or adding handrails—these may qualify as medical expense deductions, as long as they are primarily for medical use and not to increase property value.
4. Rental Property and Home Office
If part of your home is used as a rental property or a home office, improvements to that space may be deductible in the year they are made. For example:
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Renovating a bathroom in your rental unit
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Installing new flooring in your dedicated home office
These costs can usually be depreciated over time.
What Does Not Qualify?
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Routine repairs (painting, fixing leaks, patching walls)
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Cosmetic upgrades that don’t add significant value
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Temporary fixes instead of long-term improvements
How to Keep Track for Tax Purposes
To maximize your tax benefits, always:
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Save receipts and invoices for improvements
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Keep records of contracts and permits
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Document before-and-after photos for clarity
This will help you (and the IRS) determine the added value when it comes time to sell or file taxes.
Final Thoughts
While most home improvements aren’t tax deductible right away, many can save you money in the long run—especially when you sell your home, invest in energy efficiency, or make medically necessary upgrades. Understanding the difference between what qualifies and what doesn’t ensures you don’t miss out on valuable tax benefits.
