Can I Deduct Home Repairs on My Taxes?

Generally, the cost of repairs to a personal residence is not deductible on your federal income tax return, as these are considered personal expenses. There are, however, specific situations where home-related expenditures can result in a tax benefit. These circumstances include using your home for business or rental purposes, making certain energy-efficient upgrades, or increasing your home’s value through improvements that can lower taxes upon sale. Each scenario has distinct rules that determine its tax treatment.

Understanding Repairs Versus Capital Improvements

The Internal Revenue Service (IRS) distinguishes between repairs and capital improvements, a distinction that governs their tax implications. A repair is an action that maintains a property’s good operating condition without adding to its value or extending its life. Examples include fixing a leaky faucet, patching a hole in a wall, repainting a room, or replacing a single broken window pane.

A capital improvement, on the other hand, is an expense that adds value to the property, prolongs its useful life, or adapts it to new uses. As detailed in IRS Publication 523, these are substantial projects like adding a new bathroom, replacing an entire roof, or finishing a basement. The cost of a capital improvement is not deducted in the year it is incurred but is instead added to the property’s cost basis.

The difference is a matter of scope and impact. For instance, repairing a few shingles on a roof is a repair, but replacing the entire roof is a capital improvement. Similarly, fixing a crack in the plaster is a repair, while building a new addition is an improvement. If a repair, such as painting, is done as part of a larger renovation project like a kitchen remodel, its cost can be included in the total for the capital improvement and added to the home’s basis.

Tax Deductions for Business or Rental Use

When a home is used to generate income through a home office or as a rental property, the tax rules for repairs and improvements change. For individuals who use a portion of their home exclusively for business, the home office deduction allows for a write-off of certain expenses. The IRS categorizes these as either direct or indirect. Direct expenses, which benefit only the home office space, are fully deductible. For example, the cost of painting or repairing a window solely within the designated office area can be deducted in its entirety.

Indirect expenses benefit the entire home, including both the business and personal areas. These costs, such as repairing the furnace or fixing the roof, are deductible based on the percentage of the home used for business. If the home office occupies 15% of the home’s total square footage, then 15% of the cost of an indirect repair is deductible.

For rental properties, the costs of repairs, such as fixing a plumbing leak or replacing a broken appliance, are considered operating expenses. These are fully deductible in the year they are paid, reducing the landlord’s taxable rental income according to IRS Publication 527.

Capital improvements to a rental property cannot be deducted in a single year. Instead, these costs must be capitalized and depreciated over a specific recovery period. For residential rental properties, the IRS mandates a depreciation schedule of 27.5 years under the Modified Accelerated Cost Recovery System (MACRS).

Tax Benefits for a Personal Residence

While annual deductions for repairs on a personal residence are not permitted, home-related expenses can provide a tax benefit in several other ways:

• Capital improvements provide a benefit at the time of sale. These expenses increase your home’s cost basis, which is your original purchase price plus the cost of improvements. A higher basis reduces your calculated capital gain when you sell the home. For example, if you bought a home for $300,000 and spent $50,000 on a new addition, your adjusted basis becomes $350,000, potentially lowering your taxable gain.
• Home improvements made for medical reasons may be deductible as a medical expense. If a modification is made for the medical care of you, your spouse, or a dependent, the cost may be deductible. This includes projects like installing ramps or widening doorways. The deduction is limited to the cost that exceeds any increase in the home’s value and is subject to the overall limit for medical expenses, which must exceed 7.5% of your adjusted gross income.
• Certain energy-efficient home upgrades can qualify for tax credits, which directly reduce your tax liability. The Residential Clean Energy Credit applies to new, qualified property like solar panels and geothermal heat pumps and is equal to 30% of the cost for property installed from 2022 through 2032. You can claim this credit by filing IRS Form 5695.
• Deductions for casualty losses from events like fires or storms are restricted. For tax years 2018 through 2025, you can only deduct personal casualty losses if they occur in a federally declared disaster area. If you qualify, you must report the loss on Form 4684, and the amount is subject to certain limitations.

Required Documentation and Record-Keeping

To claim any tax benefits related to your home, you must maintain records to substantiate all costs. The burden of proof rests on the taxpayer, and the IRS can disallow deductions or basis adjustments without proper documentation. Keep all invoices and receipts that clearly detail the work performed, separating costs for labor and materials, along with proof of payment like canceled checks or bank statements.

For capital improvements, before-and-after photographs can help demonstrate the scope of the work. You should also retain copies of any contracts with builders and any building permits obtained for the work, as these documents provide a clear timeline and description of the project.

In certain circumstances, additional documentation is required. If you are claiming a deduction for a medically necessary improvement, a statement from a doctor recommending the modification is advisable to prove the medical need. For energy credits, you will need the Manufacturer’s Certification Statement for the qualifying products you installed.

You should keep records relating to your home’s basis for as long as you own the property, plus at least three years after you sell it and file the corresponding tax return. Because the IRS has up to six years to audit a return if it suspects a substantial underreporting of income, many tax professionals recommend keeping these documents for at least seven years after the sale.