Are Home Improvements Tax Deductible? What Qualifies & What Doesn't

Home improvements increase your property's adjusted cost basis, which reduces taxable capital gains when you sell. Your cost basis starts with the purchase price plus closing costs, then rises with the value of permanent improvements.

Keep receipts and invoices for every improvement. The IRS distinguishes between improvements (adding value, prolonging useful life, or adapting the property to new uses) and repairs (restoring existing function).

The Energy Efficient Home Improvement Credit and Residential Clean Energy Credit let you claim a percentage of qualifying costs on your federal return. Under the Inflation Reduction Act, the Energy Efficient Home Improvement Credit covers 30% of costs for heat pumps, heat-pump water heaters, biomass stoves, energy-efficient windows and doors, insulation, and home energy audits, up to annual limits ($1,200 for most items, $2,000 for heat pumps).

The Residential Clean Energy Credit offers a 30% credit with no annual cap for solar panels, solar water heaters, geothermal heat pumps, small wind turbines, and battery storage (if charged by renewable systems). You claim these credits on IRS Form 5695.

Medically necessary home improvements are deductible to the extent they don't increase your home's value, and only if you itemize and your total medical expenses exceed 7.5% of your adjusted gross income. The IRS allows deductions for modifications prescribed by a physician to accommodate a disability or chronic condition: wheelchair ramps, widened doorways, handrails, modified staircases, accessible bathrooms, or warning systems for the hearing-impaired.

If an improvement increases your home's market value, you can deduct only the amount that exceeds the value increase. Installing a $15,000 elevator in a home with mobility-impaired residents might add $10,000 to the property's appraised value, making $5,000 deductible.

If you're self-employed and qualify for the home office deduction, improvements to the office space are deductible or depreciable. The space must be used regularly and exclusively for business, and it must be your principal place of business or a place where you meet clients.

You'll depreciate most improvements over 39 years using the Modified Accelerated Cost Recovery System (MACRS) for nonresidential real property, reporting on IRS Form 4562. Small items (under the Section 179 or de minimis safe harbor thresholds) may be fully deductible in the year purchased.

Rental property improvements are depreciable business expenses. Unlike repairs (deductible in full the year you make them), improvements must be depreciated over 27.5 years for residential rental real estate.

Report depreciation on Schedule E (or the appropriate business form) using MACRS. The IRS safe harbor for small taxpayers (total receipts under $10 million, average annual gross receipts under $10 million for the prior three years, and building value under $1 million) allows you to deduct up to $10,000 per building per year in otherwise capital improvements, provided each improvement doesn't exceed the lesser of 2% of the building's unadjusted basis or $10,000.

Maintain a dedicated file with dated receipts, invoices, contracts, permits, and before-and-after photos for every improvement. Note the project description, contractor name and taxpayer identification number, payment method, and completion date.

Include settlement statements and closing documents showing your original purchase price and closing costs. Track improvements chronologically in a spreadsheet listing date, description, cost, and category (capital improvement, repair, energy credit, medical).

Consider professional advice before large projects, when selling a highly appreciated property, if you're converting a primary residence to a rental, or when claiming energy credits, medical deductions, or home office depreciation for the first time. A CPA or Enrolled Agent can model the tax impact of a $100,000 kitchen remodel versus a series of smaller projects, advise on timing (completing improvements before a sale to maximize basis versus deferring to a lower-income year for credits), and ensure you're using the correct depreciation method.

State tax rules sometimes diverge from federal treatment—California, New York, and other states may have separate energy credit programs or different capital gains exclusions. A local tax professional knows these variations.

Can I deduct a new roof on my primary residence?

Do kitchen remodels qualify for any tax deductions?

Kitchen remodels on a primary residence are not deductible but add to your home's cost basis. If you install ENERGY STAR–certified appliances as part of the remodel, you may qualify for a small energy credit.

How much can I claim for solar panels on my home?

You can claim 30% of solar panel installation costs (including labor) as a federal tax credit through 2032 under the Residential Clean Energy Credit, with no dollar cap. State incentives and utility rebates may provide additional savings but may reduce your federal credit basis.

Are swimming pools ever tax deductible?

What's the difference between a repair and an improvement for tax purposes?

A repair restores existing function without adding value or extending useful life (patching drywall, fixing a leak). An improvement adds value, prolongs life, or adapts to a new use (new HVAC, room addition, new roof).

Can I deduct landscaping or a new fence?

Landscaping and fences on a primary residence are not deductible but increase your cost basis. On a rental property, they're depreciable over 15 years (land improvements).