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Are Home Improvement Tax Deductible in 2019 | Full Guide

Everyone wants their home to be well-equipped and finished. For that, you must have invested much more in the improvement of your home. After investing you might be asking yourself "Are home improvement tax deductible". 

And the answer is "YES". So, the money spent on your house breaks can actually lower your tax bill. I am sure you find this interesting because you are like me, who always want tax credit. But Keeping the record of the investment you made in the house breaks can reduce your tax in the year you sell it.

are home improvement tax deductible

What kind of home improvements is tax deductible?

This topic is a little bit complicated. According to IRS, there is a couple of thumbs rule that categorizes your spending as an improvement. 

Not all the capital you invest in making your house a better place can help you in a tax deduction. 
  • The investment which actually increases your house value is tax deductible.
  • The capital investment which at least lasts for one year and prolongs its life or adapts to new uses are tax deductible.
  • When you are using your house just for a personal residence rather than a business place, then your cost of the improvement is non-deductible.
  • The cost of repair to fix the simple breakage in your house like replacing the window glass, painting the room, etc are non-deductible. 

 Difference between house improvement and repair

Improvement and repair, both look similar but there is a fine line between them. 

Improvement refers to modifications or any addition to your house which increases the property value. Improvement can include anything from a new swimming pool to replacing the roof, installing an air heater or conditioner, installing a new setup of energy source, upgrading kitchen, etc.

On the other hand, the repair is like maintaining the original value of the things, so it keeps on functioning as usual. Repairing does not seem to add any value to your property. For example, Painting the room, replacing the carpet, fixing a broken water pipe, replacing the broken window glass, etc.

Limitation in Home Improvement Tax Deduction    

Although you may have implemented various capital improvement in your home, sometime IRS might see the things differently. So, it is better if you have the proper knowledge of limitation that occurs in an improvement tax deduction. IRS says that the improvement is tax deductible, only if it exists in the year you sell them. 

For example, 8 years ago if you have installed solar thermal and then 5 years later you just replaced it with a solar panel, now you cannot claim a tax deduction for solar thermal.

Another limitation is you cannot have your home improvement tax deduction in the first year itself. 

For example, you invested around $20,000 to build a new bathroom in your house. This renovation actually increased value to your property. But now you cant claim for a tax deduction in the current year itself rather then you can depreciate them. Depreciation refers to a decrease in the value of thing over time. There are different rules by IRS on regarding depreciation of property. 

How does Home Improvement affect your tax bill?

To know about this, first of all, you need to have a clear idea about the 'cost basis' of your house. 'Basis' is nothing but the total value or price of the property which you paid while buying your house including all the taxes.

If you are making any capital investment in your house as a part of improvement, it gets added to the basis of your house. In this way only the value of your property increases.

Suppose, you bought a house worth $400,000 (which refers to the 'basis' of your house) about 15 years ago. You did some improvement in your house like you build a home office in your backyard which was worth $50,000. Now the total cost basis of your house becomes worth $ 450,000. Now you are selling your house for $800,000. That means you have got a capital gain of 350,000 (subtracting $450,000 cost basis from the $800,000 sales price). Now only your profit amount is taxable. Here is the interesting part, you don't have to pay tax on $250,000 if you qualify for the home sale tax execution.

5 Home Improvements that are Tax Deductible

Here is the list of 5 home improvement that is effectively tax deductible.

1. Medical or Disability related improvement

medical care home improvement

The capital you invest in home implementation because of medical reasons is tax deductible. Especially, when the expenses you made is prescribed by the doctor. Sometime you may fully qualify for a tax deduction when the main purpose of the improvement is for the medical care of you and your family. In case the improvement adds values to your property, you may not qualify for the full tax deduction. In this case, there are various rules by IRS which can limit your tax deduction. 

Here is the list of some of the tax deduction with medical equipment 

  • Building entrance or exits ramps for your house
  • Constructing lifts  for the easy travel
  • Installing hardwood floor
  • Installation of fire alarms or another warning system
  • Modifying the staircase for easy travel. 

And you can even deduct tax on the cost required for maintaining this medical equipment such as electricity. 
For more information check out the source article on deducting medical home improvements.

2. Home Office improvements

home office improvement

Do you have invested in modifying a portion of your home into an office for business purpose? If 'Yes', then you might be eligible for a home office tax deduction. But in order to take advantage of this, you need to fulfill two basic conditions, as stated by the IRS.
1. Firstly, you need to have a designated area in your home that you use for your business regularly and exclusively.
  • Regularly, in the sense, you should work at least 10-12 hours of the week on average in your home office.  

  • Exclusively, means you should use that space only for the business purpose.
2. Secondly, you should show your home office as your principal place for business. You should do all the administration and managerial activities from your home office.

But according to the change in tax law, sometimes you may have to say goodbye to the home office tax deduction. Anyhow if you qualify for this deduction, it is good to note that both home improvement and repair are tax deductible.

Below is the list of tax-deductible conditions applied for home office improvement
  • The home office improvement or repair that adds value to the entire home is partially tax deductible.
  • Repairs or improvement that is done exclusively for the home office is fully tax deductible.

3. Day Care related improvement

child day care home improvement

While you can remodel some portion of your house to provide daycare for children. To start with daycare, first of all, you have to get legal permission. You will qualify the tax deduction on your daycare expenses if it's your primary business. You should keep the record of expenses in order to get tax deducted.  

This home improvement is not known to most of the people. Capital invested in the improvement of your home daycare business can help you in a tax deduction. But remember the routine maintenance expenses are not generally considered for the deduction. 

4. Energy Efficient improvement

energy efficient improvement

Because of the change in tax law, most of the energy improvements expenses are not credited. You can get a tax credit on the installation of energy sources like solar, geothermal, small wind turbine and fuel, etc. 

On the installation expenses, you can get credited up to 30%. You cannot deduct the capital invested ever year rather than it's credited only once. 

5. Home improvement for the resale

home improvement for resale

The capital investment that adds value to your property gets deducted when you sell it. For this, it is important that you keep track of all your expenses on the house breaks.

The improvement like modifying a kitchen, building bathroom, installing the garden irrigation system, finishing the basements, constructing a swimming pool, paving the driveway, putting up a fence, etc, can give you some good deduction on your tax return.

Some of the frequently asked Questions:

1. Can you claim renovation on your tax?

No, you cannot deduct the expense of home improvement using a home renovation tax credit says H&R block.

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