Home improvements in a personal residence are generally not tax-deductible for federal income taxes. However, installing energy-efficient equipment may qualify you for a tax credit, and renovations for medical purposes may qualify as tax-deductible. No, you can't deduct home improvement expenses with a home renovation tax credit. But, home improvement tax deductions are available to make your home more energy efficient or to make use of renewable energy sources, such as solar panels. Generally speaking, home improvements are not eligible for tax deductions.
But there are exceptions to this rule. A number of rules overlap and change every year. It is always best to consult a tax professional before making any decisions that could affect your tax obligations. If you use your home equity line of credit (HELOC) to finance the improvements, the interest you pay on the loan may be tax-deductible if it meets certain criteria. Additionally, when it comes time to sell your home, any improvements made for resale value can be deducted from your taxes.
It is important to keep track of all receipts and labor costs associated with the project. If you use your home to generate income, any improvements made to the area where you conduct business may qualify as federal tax deductions. Examples of such improvements include adding a new driveway, roof, siding, attic insulation, septic system, or integrated appliances. Depending on the type of improvement and other criteria, a one-time deduction may be available in a single tax year or spread out over several years. The IRS provides a useful home improvement log chart that allows you to record all improvements and their costs. Some types of home improvement projects may be eligible for a tax waiver, but it ultimately comes down to the type of remodeling you are completing and whether it is classified as a repair or an improvement.
Even if you don't plan to sell your home next year, it is important to document any tax-deductible improvements you make so that you can get the most out of your money when the time comes. In the eyes of the IRS, an improvement could be anything that is a “capital improvement” - anything that increases the value of the property. According to the IRS, a capital upgrade is any improvement that adds substantial value to your home, extends its life, or adapts it to new uses. If you made permanent home improvements that increased its resale value, they count as tax-deductible home improvements that can be added to your cost base and help you avoid taxes when you sell your home.