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Are Home Improvements Tax Deductible? Tax Day Tips!

It's tax season! And one thing that's on everyone's minds is how to maximize the money we will keep in our pockets this year. A common question is: Do any of the home projects I've spent money on this past year count for a deduction or qualify for a tax credit? And if so, which ones?

When it comes to the IRS, it’s important to remember that there is a difference between home repairs and home improvements. General upkeep of your home, maintenance, and basic repairs are not eligible for tax deductions or credits, sorry! But, let's talk about what projects are eligible. Home improvements, which are projects that add value and prolong a house's life, may be eligible. It's not a huge list, but if you did any of these projects last year, be sure to speak to your accountant and see what tax benefits you might be eligible for as a result.

You'll see that the major group of improvement projects that qualify for deductions or tax credits are those that improve energy efficiency. Check energystar.gov for specific credit amounts and details. Here are a few of the most common items/projects that could qualify for tax benefits:

  • Installing a biomass stove
  • Installing solar electric
  • Installing solar water heating
  • Adding insulation
  • Installing energy-efficient windows
  • Installing energy-efficient exterior door(s)
  • Installing energy-efficient garage door(s)
  • Installing a metal or asphalt roof
  • Installing an energy-efficient furnace or hot water boiler
  • Installing an energy-efficient forced hot air furnace

(Note: The unit, appliance, or materials used for your project must be official qualifying products - not just any item you choose)

So if you've completed any of these projects in the past year, be sure to tell your accountant or note it when doing your own taxes. You could be eligible for a tax credit or deduction. Keep in mind that for energy-efficient home improvements deductions, you will only receive a percentage of your investment back (not including labor in most cases) and you can only deduct up to a lifetime maximum of $500. So the amount you can deduct for these types of improvements will go down each year.

Now just because home improvements to a large degree do not qualify for yearly deductions or credits at tax time, doesn't mean that they aren't a good idea. Remember that improvements to your home can increase its value. So when it comes time to sell, you'll be glad you did them. And thanks to the Taxpayer Relief Act of 1997, single taxpayers can realize up to $250,000 and married couples up to $500,000 of profit on a house sale without having to pay any tax on it. That's a lot of room for potential gain, as most people's house sale profits fit well under these limits.