Are home improvements tax deductible? IRS rules explained

While most home improvement projects don’t qualify for tax deductions right away, some upgrades or repairs may offer tax advantages down the road – especially when it’s time to sell your home. We’ll look into which home improvements could bring tax benefits and how you can make the most of them.

Key takeaways:

• Most home improvements aren’t immediately tax deductible, but they can lower your tax bill through credits, depreciation, interest deductions, or a higher cost basis.
• Capital improvements, like a new roof or an added room, increase your home’s cost basis and, consequently, may reduce your capital gains tax when you sell.
• Keep detailed records of every home improvement project and consult a tax professional to make sure you claim the right tax benefit.

Are home improvements tax deductible?

No, home improvements aren’t tax deductible, though they can come with tax benefits.

Specifically, some home improvements can qualify you for:

• Tax credits: These are dollar-for-dollar amounts you claim on your tax return to reduce the income tax you owe. For example, a $1,000 tax credit would reduce how much you owe by $1,000.
• Cost basis increases: Cost basis is the starting point for figuring a gain or loss when selling a home. An increase in cost basis lowers your gain, reducing your capital gains taxes (all else equal).
• Deductible depreciation increases: A cost basis increase can also increase how much depreciation you can deduct from your taxes, lowering your overall tax bill.

Keep in mind that these tax benefits are distinct from a regular tax deduction and from each other.

Home improvements vs. home repairs

It’s also important to understand that the Internal Revenue Service (IRS) distinguishes between home improvements and repairs.

Capital improvements and cost basis

A home or capital improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. This could include adding a room to the house, installing a new fence, or paving your driveway.

While improvements can’t be deducted, they do add to your home’s cost basis and may reduce your taxable capital gains if and when you sell the property.

Routine repairs and maintenance

According to the IRS, repairs keep your home in an ordinary, efficient operating condition. They don’t add to the value of your home or prolong its life. As such, you can’t deduct repair costs and generally can’t add them to the cost basis of your home.

Examples of repairs include fixing a leaky faucet, replacing broken windows, or painting the home’s interior or exterior.

Projects that depend on context

That said, repairs that are done as part of an extensive remodeling or restoration are considered improvements and can be added to the basis of your home as a result.

Some examples of projects falling into this category may include structural repairs or a remodel of a kitchen that had broken appliances.

How are different home projects treated for tax purposes?

Here’s how the IRS treats home improvements for tax deduction purposes:

Home improvements that may qualify for tax benefits

Depending on the project, a home improvement may qualify for tax benefits, including deductions, credits, depreciation, casualty losses, and interest deductions. Let’s go over them.

Home office upgrades

If you turn a room into a home office, you may be able to deduct some of its expenses from your taxes. However, the home office must be used exclusively and regularly for work. Furthermore, you can only deduct direct business expenses in full. The total indirect expenses of the home must be allocated to the percentage of the home’s floor space used for business.

Home improvements for medical care

Some medical expenses may be claimed as deductions on your tax return, including some medically necessary home modifications, such as:

• Installing ramps for wheelchair access
• Adding railings or support bars
• Widening hallways or doorways

Keep in mind, however, that the improvement’s cost is reduced by any related increase in the home’s value. If the home’s value doesn’t increase, the entire cost may be considered a medical expense.

Energy-efficient home improvements

The Energy Efficient Home Improvement Credit covered 30% of certain qualified expenses for upgrades placed in service from Jan. 1, 2023, through Dec. 31, 2025, including:

• Qualified energy efficiency improvements installed during the taxable year
• Residential energy property
• Home energy audits

That credit has ended. It doesn’t apply to property placed in service after Dec. 31, 2025, so upgrades completed in 2026 or later don’t qualify. If you completed an eligible upgrade by the end of 2025, you may still be able to claim the credit for that tax year.

Some states and utilities offer rebates for energy-efficient upgrades, so check with your state energy office and utility company to see what’s available in your area.

For items placed in service in 2025, the credit was allowed only if a qualified manufacturer produced the item and you reported its Qualified Manufacturer Identification Number (QMID) on your return.

Rental property maintenance and improvements

If you’re renting out your property, you may be able to deduct repair and maintenance costs as a business expense. The IRS defines qualifying repair costs as expenses that keep your property in good working condition but don’t add to the property’s value.

By contrast, home improvements can’t be deducted. However, they can increase the property’s cost basis, potentially lowering your capital gains tax and increasing the amount of depreciation you can write off over time.

These rules may also apply if you rent out a portion of your home.

Improvements made using a mortgage or home equity loan

The interest on home equity loans or home improvement loans used to buy, build, or substantially improve your home may be tax deductible. However, you can deduct home mortgage interest only on up to $750,000 ($375,000 if you are married filing separately) of that debt.

The same rules may apply if you use a cash-out refinance or a home equity line of credit (HELOC) to pay for improvements. Rocket Mortgage does not offer a HELOC.

Use our home equity calculator to estimate how much equity you have available to borrow against.

Disaster-related repairs

You may be able to deduct casualty and theft losses related to your home on your tax return if the loss is caused by a federally declared disaster. Repair costs may help measure that loss without being deducted directly as home improvements. Any insurance reimbursement reduces your loss, so be sure to file a homeowners insurance claim. If your home was damaged, you can learn more about how to recover after a natural disaster.

Historic home restoration

If you renovate, restore, or reconstruct a historic building, you may be able to receive a tax credit of 20% of the qualified expenses over a 5-year period. However, the credit generally applies only to income-producing properties.

What home improvements are tax deductible when selling?

When you sell a home, you’re still unable to deduct home improvements. However, they can increase your cost basis, lowering how much you owe in capital gains tax.

Under IRS rules, you can exclude up to $250,000 of profit (or up to $500,000 for married couples filing jointly) from your taxes when you sell your home. To qualify for this Section 121 exclusion, the property must be your primary residence, and you must meet the ownership and use tests by having owned and lived in the home for at least 2 out of the 5 years before the sale. There are also ways to reduce or avoid capital gains tax on real estate.

How capital improvements affect your cost basis

A qualifying home improvement can include:

• Adding rooms to the house
• Installing a new roof
• Redoing the insulation
• Upgrading heating, ventilation, and air conditioning (HVAC) systems
• And more

Here’s how the cost of these improvements can impact your cost basis for capital gains tax:

Imagine you buy a home for $150,000 and later sell it for $500,000. You earn a profit of $350,000, of which $250,000 is exempt, and you’d pay capital gains tax on $100,000.

If you make $50,000 in home improvements that qualify for an increase in your cost basis, you can reduce your profit by that amount. In that case, your profit on the home would be $300,000, and you’d have to pay capital gains tax on $50,000 after the exemption is applied.

What records should you keep?

Retain receipts, bank statements, purchase orders, canceled checks, forms, and other documentation supporting the cost and purpose of each home improvement project. This way, you can justify any claimed cost basis increases in an IRS audit.

How to claim home improvement tax benefits

To claim a home improvement tax benefit, follow these steps:

1. Classify the home improvement project
2. Identify the applicable tax treatment and timing
3. Gather supporting documents
4. Consult a tax professional

FAQ

Here are answers to frequently asked questions regarding home improvement tax deductions.

How much can you write off on home improvements?

There is no single write-off amount because the tax benefit depends on whether the project qualifies for a deduction, credit, depreciation, interest deduction, or basis increase. Consult a tax professional to learn more.

What is the new $6,000 tax deduction for seniors?

Effective 2025 through 2028, those who are age 65 and older may claim a deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law. This does not relate to home improvements.

What is considered a major home improvement?

To qualify as a home improvement, a project must materially add to the value of your home, considerably prolong its useful life, or adapt it to new uses.

Can I claim a new deck on my taxes?

A new deck may qualify as a capital improvement that increases your home’s cost basis and thereby lowers any capital gains tax (all else equal). However, it doesn’t qualify for an immediate deduction (unless a supported exception applies).

The bottom line

Most home improvements aren’t deductible right away, but they can still pay off at tax time. Depending on the project, you may qualify for a tax credit, depreciation, a casualty loss deduction, or a mortgage interest deduction. Moreover, home improvements can raise your home’s cost basis, which may lower your capital gains tax when you sell the home.

Because tax rules vary by project type and by how you use the property, keep detailed records of every expense and consult a tax professional before filing.

If you’re ready to fund your next home improvement project, you can start by applying with Rocket Mortgage today.