Home improvements can make your space work better for you, but are they tax deductible? Not necessarily, it depends on the type of upgrades or repairs you make. This home improvements tax deductions guide explains which home improvements could get you a break at tax time, limitations to the amount you can write off and how you can maximize your dollars to cover costs.
Home Renovation Loans
Are Home Improvements Tax Deductible?
Home improvements fall into three categories: capital improvements, renovations for medical needs and energy-saving improvements. However, they’re generally not deductible if you use your home solely for personal reasons. Still, they can help you lower your tax liability if you turn a profit when selling your home since these improvements increase your tax basis or the amount you have invested in your home.
To illustrate, assume you purchased your home for $350,000 and later sold it for $650,000. However, you made improvements of $150,000 (that are still intact) during your stay, bringing your tax basis to $500,000. In this situation, you’d only have to pay taxes on a gain of $150,000. Even better, the IRS allows you to exclude up to $250,000 in gains on home sales, which means you wouldn’t owe capital gains tax on the sale, assuming you qualify for the home sale tax exclusion.
Below is a breakdown of home improvements that could help boost your tax basis.
These are upgrades that will substantially increase the home’s value, add to its useful life or make it more adaptable for a specific use, including:
- Interior home additions and upgrades: extra bedroom or bathroom, fireplace, kitchen remodel, new appliances, carpeting
- Exterior home additions: garage, patio, deck, porch
- Exterior upgrades: siding, shingle replacements, a new roof or storm windows
- Insulation upgrades: ducts, pipes, flooring, walls
- System replacements: central air, heating, security, filtration, water heater or softener, septic
- Grounds: driveway installation or replacement, fencing, swimming pool, retaining wall
Renovations for Medical Needs
Will the improvements make delivering care to you, your spouse, or a loved one easier? If it’s permanent and leads to an increase in your property value, it qualifies as a capital improvement. Examples of the qualifying medical renovation include:
- Entrance or exit ramps
- Kitchen modifications, including lowered cabinets
- Modified stairways with handrails
- Support bars or railing in the restrooms
- Smoke detectors and fire alarms
- Widened doorways or hallways
Otherwise, you can classify the costs you incur as medical expenses and deduct them on your tax return.
Home improvements that conform to energy-efficiency standards could also get you a break at tax time. The specific tax benefit is referred to as the residential energy-efficient property credit. It gives you a credit equivalent to the value of energy-efficient equipment or qualified property, including fuel cells (subject to limitations), geothermal heat pumps, small wind turbines, solar electricity and solar water heaters.
Home Renovation Loans
Tax-Deductible Home Improvements
Below, you’ll find a breakdown of home upgrades that are tax deductible.
If you use your home for business purposes and have a tax-deductible home office, the cost of repairs is deductible. However, the amount is limited to the percentage of the home that’s taken up by business or rental use.
To illustrate, if you make $10,000 in renovations and use 15 percent of your home as an office, you can deduct $1,500. But if you rent out the entire home, you can deduct $10,000.
Home Office Renovation and Rental Property Renovations
The same rule applies to home office renovations. So if 10 percent of your home makes up the home office and you spend $5,000 renovating the space, you can deduct $500.
How to Claim Home Improvement Tax Deductions
You can claim qualifying home improvement tax deductions on your federal income tax return.
Maximize The Funds to Finance Your Home Improvements
Whether you want to make costly repairs or upgrades to your home, RenoFi can help you unlock more borrowing power by letting you borrow against your home’s after-renovation value. The online platform partners with credit unions nationwide to get you the best deal on a home renovation loan that doesn’t require inspections or draws.
You can choose from one of the following options:
- RenoFi HELOC: Use a RenoFi home equity line of credit (HELOC) to access the funds for your renovation project when you need them. Loan amounts range from $25,000 to $500,000, and you can borrow up to 90 percent of your home’s after renovation value. You’ll have up to 10 years to pull from your HELOC, followed by an amortization period of up to 20 years. Both fixed and variable interest rates are available.
- RenoFi Fixed Rate Home Equity loans: With a home loan from RenoFi, you’ll receive between $25,000 and $500,000 in a lump sum when the loan is funded. Loan terms of up to 20 years are available, and loans are also capped at 90 percent of the after-renovation value.
- RenoFi ReFi: This loan product gives you the best of both worlds. You can refinance your existing mortgage and pull out the funds you need to cover renovation costs with just one loan product. Take out a new fixed-rate mortgage of up to $2,000,000, limited to 80 percent of the after-renovation value of your home, with a repayment term of up to 30 years.
Get started with RenoFi by visiting the website and using the loan calculator to learn how much you may be eligible for. You can also view potential monthly payments and rates with this tool.
If you wish to move forward with applying for a loan, use the self pre-qualify tool to identify the perfect renovation loan, whether it’s for your current home or a property you’re looking to purchase soon. You’ll be assigned to a RenoFi advisor to help you navigate the loan process from start to finish so you can secure the funding needed to make your home work for you.