Can I Claim House Repairs on My Taxes?

Homeowners often wonder if the money spent on house repairs can lead to tax savings. The ability to claim these expenses on taxes is not straightforward; it depends significantly on the nature of the work performed and how the property is used. Understanding the distinctions and specific rules is important for anyone looking to navigate this area of tax law.

Differentiating Between Repairs and Improvements

The Internal Revenue Service (IRS) distinguishes between a “repair” and an “improvement” for tax purposes. A repair maintains a property’s current condition, keeping it in normal operating order without significantly increasing its value or extending its useful life. Examples of repairs include fixing a leaky faucet, patching a hole in a wall, repairing a broken window, or repainting a room.

In contrast, an improvement adds value to a property, extends its useful life, or adapts it to new uses. Examples of improvements include adding a new room, remodeling a kitchen or bathroom, installing a new roof, or upgrading an entire HVAC system. While repairs generally restore an asset to its previous condition, improvements enhance it.

Deducting Repairs for Rental Properties

For properties held for rental income, the rules for deducting repairs are more favorable. The costs of repairing and maintaining residential rental property are generally deductible in the tax year they are paid.

Common deductible repairs for rental properties include fixing leaks in plumbing systems, repairing broken windows, patching walls, or fixing faulty light fixtures. These expenses are considered ordinary and necessary for operating a rental property. There is generally no specific dollar limit on how much can be deducted for repairs, as long as they meet IRS criteria and are properly classified. These expenses are typically reported on Schedule E.

Deducting Repairs for a Home Office

If a portion of your home is used exclusively and regularly for business, you may be able to deduct certain repair expenses related to that space. This “exclusive and regular use” test means the area cannot be used for any personal purposes. Additionally, the home office must be your principal place of business, or you must use it to meet or deal with clients or customers in the normal course of business.

Eligible expenses for a home office can include direct expenses, which are solely for the business part of your home (e.g., painting the office), and a percentage of indirect expenses, which benefit the entire home (e.g., general repairs to the roof). The deduction is calculated based on the percentage of your home’s square footage used for business. Self-employed individuals typically use IRS Form 8829 to calculate these deductions and report them on Schedule C. A simplified option also exists, allowing a standard deduction of $5 per square foot for up to 300 square feet, with a maximum deduction of $1,500. This simplified method reduces record-keeping requirements.

Adjusting Your Home’s Tax Basis with Improvements

While repairs to a personal residence are generally not deductible, home improvements can increase your home’s tax basis. The tax basis is your investment in the property for tax purposes, including the original purchase price and certain closing costs. When you sell your home, the adjusted tax basis is subtracted from the sales price to determine any taxable capital gain.

Improvements add to this basis, which can reduce the capital gains tax owed when the home is sold. Examples of improvements that increase basis include room additions, new roofs, major system upgrades like HVAC, and significant landscaping projects. Energy-efficient installations can also increase basis, and some may qualify for tax credits in the year they are made.

Maintaining Proper Documentation

Record-keeping is fundamental for substantiating any home-related expenses for tax purposes. Retain all documents related to both repairs and improvements, whether immediately deductible or adding to your home’s basis. These records include receipts, invoices, canceled checks, and contracts.

For improvements, keep a running total of these expenses. These records are crucial for proving your property’s tax basis to the IRS, especially when selling your home. Records should be kept for at least three years from the tax return filing date, and property basis records for as long as you own the home plus three years after selling it.