What Home Repairs are Tax-Deductible?
Tax-deductible expenses can be reported on your tax return to save money on certain taxes. But most home repairs aren’t tax-deductible.
June 22, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
Home repairs and renovations can be expensive. In budgeting for home repairs, there’s a lot to consider:
How will you pay for the project?
Do you plan to shop around or negotiate repair costs?
Do you have a budget in mind?
Another important consideration is the tax impact of the repair. Specific projects might be tax-deductible, which could help you save money come tax season. What home repairs are tax-deductible?
What does tax-deductible mean?
A tax-deductible expense can be deducted from your income on your federal tax return, which can help reduce the amount of tax you owe come April.
Tax deductions reduce the amount of your taxable income. For example, if you earn $50,000 and have a $1,000 deduction, you’ll only pay income tax on the remaining $49,000.
Depending on your tax bracket, this could save you a chunk of change — perhaps $220 if you’re in the 22% bracket.
In other words, a $1,000 deduction doesn’t mean you’ll save $1,000 — it just means that you’ll be able to reduce the amount of your income you pay taxes on by $1,000.
Remember that you’ll only benefit from tax deductions if you itemize your deductions. Most people don't itemize and instead, opt for the standard deduction. High-income households and households with lots of deductible expenses may still benefit from itemizing, however. Speak with a tax advisor if you have questions.
What home repairs are tax-deductible?
The majority of home repairs and renovations will not qualify as tax deductions, but some do. So, what home repairs are tax-deductible?
Home office deduction for business owners
If you qualify for the home office deduction, you may be able to deduct some or all of the cost of home repairs and renovations.
The home office deduction is specifically for small business owners that operate out of their homes. If you use a portion of your home for your office or workspace, you can potentially deduct a portion of your housing expenses (rent, utilities, etc.) from your business taxes.
However, the rules are strict. The area of the home must be exclusively used for business purposes. And the deduction doesn’t apply to people who work from home for employers — it’s only for self-employed people and small business owners.
If you do qualify for this deduction, here’s how it works in terms of deducting home repair costs:
Repairs and renovations on the office itself are 100% tax-deductible. If you spend $3,000 to renovate your home office, you can likely deduct $3,000 from your business income
Repairs and renovations that benefit the entire home (like a new roof or a new HVAC system) can be deducted based on the percentage of home office use. For example, if you spend $10,000 on a new HVAC system, and your home office is 20% of your home’s square footage, you can likely deduct $2,000 from your business income.
Again, this only applies to business owners and the self-employed.
Renting out part of your home
If you rent out part of your home, you may be able to deduct some or all of the expense of renovating or repairing the property. Again, the deduction depends on the specific situation:
Repairs and renovations that benefit the rental unit itself are 100% tax-deductible. If you rent out a basement unit and have to install a new sink, that expense would be 100% tax-deductible.
Repairs and renovations that benefit the entire home are deductibles, according to the percentage of the home that is rented out. For example, if the basement unit is 30% of your home’s square footage, you could deduct 30% of the cost of installing a new roof.
These deductions are taken against your rental income, reducing your taxable rental income for the year.
Most home repairs are not tax-deductible
To sum up, there are only two situations in which you can deduct the cost of a home repair or improvement:
If you are self-employed and qualify for the home office deduction
If you rent out a portion of your home
Other than that, home repairs are not tax-deductible.
Home improvements can offer some tax benefits in some cases — more on this below.
Home improvements may reduce taxes when you sell your home
If you make large home improvements that increase the value of your home (think a new roof or a kitchen renovation), that could potentially help save you some money on taxes when you eventually sell your home.
To be clear, these expenses don’t qualify for tax deductions in the year they occur. But they may help when you sell your property.
Home improvements can increase the cost basis of your home. That means it increases the amount you paid for your home.
When you eventually sell, you may owe taxes on the difference between the sale price and the cost. Essentially, you owe taxes on the profit of the home sale. Let’s look at an example.
You purchase a home for $500,000. Ten years later, you sell it for $700,000. You would now potentially owe tax on $200,000 of profit.
Your friend buys a home for $600,000 and spends $100,000 on a renovation and new roof. Ten years later, they sell the home for $900,000. They can now add the $100,000 renovation costs to the original $600,000 purchase price — so they only owe tax on $200,000 in profit instead of $300,000.
To wrap up, here’s the unfortunate truth: Most home repairs are not tax-deductible. The only exceptions are if you rent out a part of your home or are self-employed and use a portion of your home as a workplace.
Home improvements are not tax-deductible in a traditional sense, but they do increase your cost basis for the property. When you sell, this could reduce the amount you owe.
As with anything tax-related, the rules are complex. It’s wise to consult with a tax professional for details.
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