Can You Write Off Home Improvements on Your 2025 Taxes?

Capital improvements and your cost basis

Still with us? Here’s where capital improvements come into play.

Let’s say you bought your house for $250,000 but spent $30,000 to improve it. Years later, you sell it for $525,000 in a fast-appreciating market.

You’d calculate your capital gains as follows:

Capital gain = $525,000 (sale price) – $280,000 ($250,000 original price + $30,000 in improvements; selling fees excluded)

= $245,000

In this case, the $30,000 capital improvement reduced your taxable gain from $275,000 ($525,000 – $250,000, no renovation included) to $245,000 with the improvement factored in.

For a single filer, that’s significant. You just went from having to pay taxes on $25,000 worth of gain to not needing to report the sale at all because the gain falls below the $250,000 exclusion cap.

Without the improvement, you would need to pay long-term capital gains tax of 0%, 15%, or 20%, depending on your income bracket, on that extra $25,000, assuming you’ve owned the house for more than a year. If you’ve owned the house for less than a year, the gain would be taxed as regular income.

Capital improvements vs. repairs

The trick is that you can’t assume any old plumbing repair will constitute an improvement. As defined by the IRS, a capital improvement has to increase the home’s value, adapt it to new uses, or materially extend its useful life.

If you’re fixing something broken, that’s usually considered routine maintenance, and it will not qualify as a tax deduction unless you’re using the home as an investment property. For more on deducting repairs and improvements as a rental property owner, visit IRS Publication 527.

According to IRS Publication 523 on Selling Your Home, capital improvements include:

• Home additions: adding onto a home’s bedroom, bathroom, deck, garage, porch, or patio
• Lawn and grounds: landscaping, driveway work, walkway improvements, fences, retaining walls, or a swimming pool
• Exterior: a new room, siding, storm windows and doors, or even a new satellite dish
• Insulation: adding insulation to the attic, walls, floors, or ducts
• Systems: adding or completely replacing HVAC systems, a furnace, duct work, central humidifier, central vacuum, air or water filtration systems, new wiring, security systems, or lawn sprinkler systems
• Plumbing: improvements to the septic system, water heater, soft water system, or the water filtration system
• Interior: built-in appliances, kitchen upgrades, new flooring, carpeting, or a fireplace installation

It’s important to learn the difference between capital improvements and repairs to understand better which projects offer tax benefits. But before undertaking any project that you think will add to your cost basis, double-check that it qualifies as an improvement by consulting a trusted tax professional.

Keep those home improvement receipts for when you sell

If you’re relying on home improvements to add to your home’s basis and reduce potential gain due at the sale of your home, you’ll need to keep a thorough record of receipts and bills around the projects.

That’s generally a good practice anyway, says Amanda Jones, a San Francisco real estate agent with over 20 years of experience.

“Keeping receipts isn’t just good for taxes,” Jones explains. “In many cases, you need to provide them as part of disclosures. A lot of the California disclosures ask you to attach receipts, plans, anything that you have done regarding your home or renovations.”

Records that help determine your cost basis include invoices from contractors, sales receipts from DIY projects, and permitting costs associated with each improvement.

Home improvement types that qualify for tax deductions or credits

While most home improvements aren’t directly deductible, there are specific scenarios where you can write off costs on remodeling and renovation projects. Here are a few examples that might offer tax benefits:

Medical-related home modifications

If you, your spouse, or a dependent requires renovations to your home for medical purposes, you can write off the cost of those projects per the capital expenses Publication 502 of the IRS tax code. These improvements would fall under medical expenses, not home improvement expenses, and could include anything from permanent renovations to the cost of installing medical equipment.

However, if the renovation does add value to your home, deductions can get complicated, says Ng. Let’s say you renovated your kitchen cabinets and had them lowered to improve accessibility. The project costs $20,000 and would add $8,000 to your home’s value. In that case, the remaining $12,000 could be deducted as a medical expense.

Being able to take advantage of this deduction does have a significant barrier to entry, Ng explains. You have to itemize your annual tax return to get this benefit, but because of the Tax Cuts and Jobs Act (TCJA), it’s much harder to exceed the standard deduction than it once was.

Adding to the complexity, you can only deduct the medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). “Meeting all of these criteria is nearly impossible for the vast majority of taxpayers,” Ng says.

Home office improvements

Employees are willing to take a 5% to 15% pay cut to be able to work remotely, piquing curiosity around home office tax deductions. However, according to the IRS, only self-employed people who conduct most of their business out of their homes may qualify for a home office deduction.

The TCJA eliminated the ability for remote workers who work under an employer to claim this deduction. If you qualify for the deduction, you can calculate the write-off in one of two ways:

Actual expenses:

With this method, you can deduct certain non-deductible house expenses as business write-offs based on the percentage of the home used exclusively as office space. For example, if you have a 100-square-foot office in a 1,000-square-foot home, your office accounts for 10% of your home. That means you can deduct 10% of the annual cost of your utilities, HOA fees, and homeowners insurance.

You can also deduct costs as direct expenses. Let’s say you decide to repaint your office with a fresh shade of green. You can deduct the total cost of buying the paint supplies and any other costs associated with completing the project. You can also deduct the costs of a second business phone line (separate from your primary phone line) as a business write-off.

Simplified method:

If all the math above seems like a pain to sort through, you can take the simplified home office deduction instead. For the 2024 tax year, the standard deduction is $5 per square foot of home used for business, with a maximum of 300 square feet. So if your home office measures 100 square feet, the deduction will be $500 (100 x $5).

For details on home office write-offs, consult IRS Publication 587: Business Use of Your Home.

Energy-efficient upgrades

According to the IRS form 5695, installing any of the following energy-efficient improvements can lead to a tax credit:

• Solar panels and shingles
• Solar water heaters
• Small wind turbines
• Fuel cell property
• Geothermal heat pumps

This tax credit only pays for a portion of the equipment, amounting to 30% of the installation cost for most improvements. Ng says the only exception is the fuel cell property, which is limited to a $500 credit, no matter its cost.

Historic home improvements

If you have an old home that you would want to renovate, you may be eligible for a Historic Rehabilitation Tax Credit. To qualify for the 20% federal income tax credit, you must meet the following requirements, according to IRS guidelines:

1. The building has been “substantially rehabilitated”
2. The building was placed in service as a building before the beginning of the rehabilitation
3. The building is a certified historic structure
4. Depreciation (or amortization in lieu of depreciation) is allowable with respect to the building

A “substantially rehabilitated” building has costs exceeding $5,000 or the adjusted cost basis of the building within the 24-month measuring period selected by the taxpayer and ends within the taxable year.

Tax benefits when moving as a military service member

Generally, military-related home improvements are not directly deductible for tax purposes. If you remodel rooms to prepare your home for sale after receiving orders for a new assignment, you cannot deduct those costs from your taxes. However, these improvements can increase the home’s adjusted cost basis, which may help reduce your taxable gain when you sell the property.

Moreover, as you relocate to a new place, you may be able to write off your moving and relocation expenses that have not already been reimbursed. However, the move must be a permanent change of station under the following circumstances:

• The move to your first active duty post
• A move from one post to another
• The move from your last post to a home within the U.S. must occur within a year of you ending active duty.

According to Publication 3 of the IRS, active military members can deduct the following costs associated with moving:

• Travel: lodging, airfare, and driving expenses (gas, tolls, and oil)

• Moving items: costs associated with trailer rental, professional moving services, packing, and insurance, as well as the costs of storage for up to 30 days after your move

While active military personnel can write off costs associated with their move, Ng cautions that you “can only count reasonable costs.” That means lavish hotel stays or over-the-top white-glove moving services may be excluded. In addition, most moving expenses are covered by authorized military allowances, which may render the tax break useless.

How to claim home improvement tax benefits

To file a home improvement tax credit or deductions, follow these key steps:

• Document all project expenses: Be intentional and organized in keeping records of all home improvement costs. This includes receipts, invoices, and contracts for materials and labor.
• Know if your project is qualified: As mentioned, not all home improvements are directly tax deductible. You can only claim tax benefits for upgrades done on the home office, energy-efficiency systems, or medical-related features or amenities.
• Fill out the necessary forms: Depending on your situation, you may need to file specific IRS forms. For medical-related home upgrades, list your expenses on Schedule A (Form 1040) under medical expenses. To claim a home office deduction, use Form 8829. If you’ve made energy-efficient improvements, fill out Form 5695 to secure tax relief. As for the historic rehabilitation tax credits, you must complete the Historic Preservation Certification Application.
• Consult a tax professional: Tax laws are complex. To fully understand which tax incentives you qualify for and how to navigate paperwork properly to claim them, discuss your situation with a tax professional.

Write-offs on home improvements: Know the limitations

When budgeting for home improvements, you generally can’t count on tax savings to lighten the financial burden. In that sense, it’s important to prioritize improvements that preserve value and that you can also comfortably afford.

“When making decisions about how much to invest in your home improvements, leave possible deductions out of the conversation,” advises Ng.

“Any reliance on home improvement deductions can backfire.”

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