Can I Deduct Home Improvements on my Tax Return?

For tax purposes, a home improvement includes any major improvements done that substantially adds to the value of your home, increases its useful life, or adapts it to new uses.

If you use your home purely as your personal residence, you cannot deduct the cost of home improvements. These costs are nondeductible personal expenses.

However, this doesn’t mean that home improvements do not have a tax benefit. They can help reduce the amount of taxes you have to pay when you sell your home at a profit. This is because the costs of home improvements are added to the tax basis of your home. “Basis” means the amount of your investment in your home for tax purposes. The greater your basis, the less profit you’ll receive when you sell your home.

Let’s find out what the IRS defines as major improvement:

In the eyes of the IRS, a major improvement must accomplish one or more of the following:

• Add materially to the value of your home; or
• Prolong your home’s useful life significantly; or
• Adapt your home to new uses.

Here are some examples of major improvements:

• Adding a room, garage, deck, paved driveway, or porch
• Upgrading a roof, water heater, or wall-to-wall carpeting
• Installing an upgraded central air or heating system
• Rewiring or re-plumbing your home to updated codes
• Adding a built-in pool, gazebo, or hardscaping
• Making your home fully handicap-accessible.

Major improvements do not include replacement work to maintain the home. While we’re at it, here are some common home projects that don’t qualify as major improvements:

• Small-scale improvements such as painting a room, replacing a toilet, and re-tiling or re-carpeting the floor.
• Repairs such as fixing a leak, re-plastering a cracked wall, or replacing a window.
• A like-quality replacement washer, dryer, refrigerator, or other appliance.
• Small landscaping improvements like planting flowers, replacing shrubs or a tree.
• Adding a ramp or rail for handicap access.

When a number of small projects are combined into a large project, such as extensive remodeling or restoration of the home or a room, the entire job can be considered an improvement. Also, if you have a casualty and the home is damaged, you can increase your basis (value) by the amount you spend on repairs that restore the property to its pre-casualty condition.