April 10, 2024

7 Types of Home Improvements That Are Tax Deductible


Courtney Klosterman, Home Insights Specialist and Director of Public Relations at Hippo Insurance

Nearly a quarter of homeowners say they're planning major renovations this year, and some of those projects may qualify for tax credits, which could help ease some of the high costs of homeownership.

Here are some examples of home improvements that qualify for tax deductions: As always, clients should consult with a tax professional to learn more about who qualifies for deductions.

Energy Efficient Upgrades

Homeowners may be eligible for up to a $3,200 energy-saving home improvement credit for energy-saving renovations made after Jan. 1, 2023. For 2024, the credit is 30% of eligible costs, but there are certain limitations depending on the type of renovation.

Energy-efficient upgrades can help reduce energy usage and ease the strain on your home's vital systems. Upgrades can include structural improvements to your home or the installation of new systems. Below are some sample projects:

A home energy audit may qualify for a tax credit of up to $150. Auditors help customers understand where they are wasting energy and identify health and safety issues in the home. According to the U.S. Department of Energy, a home energy audit can potentially save you up to 30% on your energy bill. To qualify for the credit, the audit must be performed by a qualified home energy auditor or someone under the supervision of a qualified auditor. It must also include a written report prepared and signed by a qualified home energy auditor, and the report must comply with industry best practices. For more information, see Notice 2023-59. Installing ENERGY STAR's most efficient exterior windows and skylights can qualify you for a credit of up to $600, depending on your qualifications. Replacing windows can improve insulation and reduce the need to run your HVAC system. Installing a biomass stove that meets ENERGY STAR requirements can qualify you for a credit of up to $2,000. To qualify, a biomass stove must be at least 75% thermally efficient. The cost may also include labor costs for installation. Biomass can consist of wood pellets or grass. Burning biomass can reduce energy usage, but insurance experts recommend following wood burning best practices to reduce fire and other health risks.

Clean Energy Upgrade

Homeowners who install new renewable energy equipment in their homes may be eligible for the Residential Clean Energy Credit. There are no dollar limits on this credit, except for fuel cell equipment ($500 for every half-kilowatt of capacity).

Using clean energy reduces reliance on traditional utility services, lowering usage and bills. Systems such as solar panels are generally easy to maintain and usually only require regular cleaning to prevent debris buildup. Below are some example projects:

Installing a solar hot water heater can reduce the strain on and extend the life of a traditional hot water heater, depending on the type installed. For example, a two-tank solar hot water heater preheats the water before it reaches the traditional hot water heater. Hot water is typically the second largest energy expense in any home. Installing a geothermal heat pump can heat and cool a home more efficiently than traditional heating and cooling systems by transferring heat to the ground instead of generating it. Geothermal heat pumps tend to be expensive, but according to the Department of Energy, homeowners may be able to recoup their investment in five to ten years, depending on the financial incentives available. Battery storage technology helps store excess energy generated from clean energy sources. This provides a reliable source of energy for homes, even if the power grid goes down.

Historic Home Upgrades

Homeowners who are renovating historic homes may qualify for the Federal Historic Home Renovation Tax Credit. Many organizations want to preserve historic structures, so historic homes are eligible for this tax credit and other grants that can help restore the home's original beauty while mitigating the financial burden of potential repairs. Below are some sample projects:

Upgrading or replacing old plumbing may qualify for this tax credit and may be necessary to bring your home up to code and prevent water damage. Replacing deteriorated parts of your home's structure, such as posts and beams, may qualify for this credit. Replacements must be similar in appearance to the originals and have at least the same load-bearing capacity as the originals. Completely replacing deteriorated stairs with the same or compatible replacement materials may make your home safer and qualify for this tax credit. New stairs must be similar in appearance to the originals.

Medically Necessary Upgrades

Homeowners can include medically necessary home improvements as a medical deduction, including improvements made to make the home more comfortable for the disabled person, spouse, or dependents who live in the home. The amount you can include as a medical deduction depends on how the improvements affect the value of the home.

If the renovation increases the value of your home, your medical expenses are counted as the cost of the renovation minus the increase in the value of your home. If the renovation does not increase the value of your home, you can include the entire cost as a medical deduction.

Homeowners can invest in upgrades that will make their home more accessible and help prevent future maintenance issues (which is especially important if they plan to retire in the same place). For example, lowered cabinets and pull-out shelves in the kitchen can help prevent trips and damage when trying to reach out-of-reach items. Here are some sample projects:

Installing improved smoke detectors and other monitoring systems can help alert people with disabilities, such as installing alarms with strobe lights for those who are hearing impaired. Using smart monitoring systems, such as water leak detectors, can help detect problems early in hard-to-reach areas. Grading or leveling the ground can improve accessibility and also help protect your home from water runoff. Leveling can help reduce steep slopes and create accessible pathways for people with mobility challenges. It can also help direct runoff water away from your home and prevent puddles. Bathroom modifications, such as grab bars and grab bars, can help prevent slips and falls. These modifications can also help prevent water splashes that can cause mold and black mildew over time.

Home Office Repairs and Improvements

If a home owner has a dedicated space in their home that they regularly use as their main office, they may be able to deduct the costs of home office renovations. The amount they can deduct depends on whether the project affects the entire home or just the office. Home office renovations are not tax deductible and are classified similarly to capital improvements. Here are some sample projects:

When installing a complete home security system, homeowners may be able to deduct the costs of maintaining and monitoring the system associated with the business portion of their home. Repairing damaged outlets and wiring may qualify for a tax deduction and, more importantly, is a critical project that helps prevent electrical fires and potential damage to equipment. According to the April 2023 National Fire Protection Association Residential Structure Fire Report, electrical distribution or lighting equipment (including wiring and outlets) was the leading cause of residential property damage from 2016 to 2020. Replacing home office windows with double or triple glazed windows to improve insulation and reduce noise may also qualify. In addition to the tax benefits, homeowners may also benefit from reduced heating and cooling needs and less strain on their HVAC systems, which may have a positive impact on resale value.

Rental property repairs

If you are a homeowner and you rent out part of your home, you may be able to deduct the cost of repairs from the amount of taxable rental income you receive. Limitations apply, including if you rent out part of your current residence.

Maintaining parts of your rental property can help prevent problems from affecting other parts of the home. For example, issues like leaks or drafts left unattended in one area can lead to bigger problems. Below are some sample projects:

Repairing leaks in tenant bathrooms can prevent long-term mold problems. Leaks can also affect the structural integrity of the home if drywall or floor joists remain wet for extended periods of time. Addressing air leaks in tenant areas improves insulation, maintains comfort, and reduces the need for heating and cooling in that area. Replacing weather stripping around windows and doors can also be effective. Regularly checking vents in tenant parts of the home increases the chances of catching airflow issues early, such as dirty vents or leaking ducts. Improved airflow improves indoor air quality and regulates the temperature throughout the home.

Capital Expenditures

Capital expenditures are projects that extend the life of a home, add value, or renovate a home for a new use. They are different from home repairs (such as fixing a leak), which are part of property maintenance but don't necessarily add value. There are some limitations on the types of capital expenditures that qualify. For example, a homeowner can't include the cost of installing carpeting if they later remove it. Also, they can't include energy-related capital expenditures if they received a grant or tax credit for energy-related capital expenditures.

Homeowners can add the value of qualified capital improvements to the cost of their home. When they sell their home in the future, they may be able to deduct the adjusted cost from the sale price. This can reduce the amount of capital gains tax they owe. However, they must also consider the capital gains tax implications of selling their home.

While homeowners won't immediately see the tax benefits of these improvements, these projects can help proactively protect your home by avoiding potential problems before they occur. Below are some sample projects:

Replacing an HVAC system that is more than 10-25 years old, is not working efficiently, or is worn beyond repair with a new HVAC system can help save money and protect your home. A modern, efficient HVAC system can help improve air circulation, maintain temperature control, and reduce your utility bills in the process. Installing attic insulation costs about $1.80 per square foot and helps reduce heating and cooling costs and put less strain on your HVAC system. A well-insulated attic also helps maintain roof temperatures and prevent associated damage, such as expansion and contraction that can occur with ice dams in the winter. Installing a water softener can help reduce calcium and magnesium in your water. This reduces buildup on plumbing fixtures and pipes, making your appliances more efficient and lasting longer.


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