Can You Deduct Home Repairs on Your Taxes?
Uncover the tax implications of various home-related expenses. Learn what home costs are deductible and how to claim them.
Uncover the tax implications of various home-related expenses. Learn what home costs are deductible and how to claim them.
Homeownership often involves ongoing maintenance and unexpected repairs, prompting questions about potential tax benefits. The tax rules for home-related expenses are specific and differ from general expectations, especially for a primary residence. This article clarifies when certain home expenses can be deducted and when they cannot.
Understanding the difference between a “repair” and an “improvement” is essential because their tax treatment varies. A repair maintains a property in its ordinary operating condition without adding significant value or extending its useful life. Examples of common repairs include fixing a leaky faucet, patching a roof, interior or exterior painting, or mending a broken window. For a personal residence, these repairs are not deductible.
An improvement enhances a property’s value, extends its useful life, or adapts it to a new purpose. This category includes projects like adding a new room, replacing an entire roof, installing new plumbing systems, or undertaking a major kitchen renovation. Improvements are not deductible in the year they are made for a personal residence. Their cost is added to the property’s “cost basis,” which can reduce taxable capital gain when the home is sold.
Some home-related expenses for a primary residence are deductible. The home office deduction is available primarily to self-employed individuals. To qualify, a portion of the home must be used exclusively and regularly for business, as a principal place of business or where clients regularly meet. Eligible expenses include a percentage of utilities, insurance, and depreciation for the office space, or specific repairs made only to that area. Taxpayers can choose between a simplified method ($5 per square foot up to $1,500) or the regular method (calculating actual expenses).
Home improvements for medical care can also be deductible as medical expenses. Modifications must be primarily for medical reasons, such as adding a wheelchair ramp, widening doorways, or installing handrails. Such expenses are deductible only to the extent they exceed 7.5% of the taxpayer’s Adjusted Gross Income (AGI) and are not reimbursed by insurance. Only the amount by which the improvement’s cost exceeds any increase in the home’s value is considered deductible.
Homeowners may also benefit from federal tax credits for energy-efficient improvements. These credits directly reduce tax liability, unlike deductions. Examples of qualifying improvements include installing solar panels, energy-efficient windows, doors, insulation, or specific HVAC systems. The Energy Efficient Home Improvement Credit allows for 30% of costs, with annual limits up to $1,200 for general improvements and $2,000 for specific items like heat pumps, potentially totaling $3,200 annually. These credits are claimed using Form 5695.
The tax treatment for home-related expenses differs significantly for properties used to generate rental income compared to a primary residence. For rental properties, most ordinary and necessary expenses incurred to manage and maintain the property are generally deductible. General repairs, such as fixing a leaky faucet, repainting walls, or addressing minor roof issues, are fully deductible in the year they are incurred.
However, improvements that enhance the property’s value or prolong its useful life, such as replacing an entire roof or undertaking a major kitchen remodel, cannot be fully deducted in the year they are made. Instead, these costs must be depreciated over the asset’s useful life. Residential rental property is generally depreciated over 27.5 years.
Beyond repairs and improvements, a range of other expenses are deductible for rental properties:
Mortgage interest
Property taxes
Insurance premiums
Utilities
Advertising costs
Professional fees for property management, legal services, or accounting
Travel expenses directly related to managing the property
Depreciation on the property itself, excluding the land value
Record-keeping is fundamental for all home-related expenses, regardless of whether they are immediately deductible. These records are important for substantiating any claims made on a tax return and for accurately calculating the property’s cost basis, which affects future capital gains when the home is sold. The Internal Revenue Service (IRS) requires taxpayers to prove their deductions, placing the burden of proof on the individual.
Essential documentation includes invoices, receipts, cancelled checks, and credit card statements for all purchases and services. Contracts for major projects, before-and-after photographs for specific improvements like medical modifications or home office setups, and precise records of the dates expenses were incurred are also valuable. Organizing these records by year and category can streamline the tax preparation process and provide clear evidence if an IRS audit occurs. Keeping these documents for at least three to seven years is advisable.
Once documentation is prepared, the next step involves reporting eligible deductions and credits on the appropriate tax forms. For individuals claiming the home office deduction, expenses are reported on Schedule C (Form 1040), Profit or Loss from Business. If the actual expense method is used for the home office, Form 8829, Expenses for Business Use of Your Home, must also be completed and submitted with Schedule C.
Medical care improvements, when they qualify as deductible medical expenses, are reported on Schedule A (Form 1040), Itemized Deductions. These expenses are subject to the Adjusted Gross Income (AGI) limitation, meaning only the amount exceeding 7.5% of AGI can be deducted. Federal energy-efficient home credits are claimed on Form 5695, Residential Energy Credits. This form is used to calculate and report the credit amount, which directly reduces the tax owed.
Expenses related to rental properties are reported on Schedule E (Form 1040), Supplemental Income and Loss. This schedule allows property owners to report their rental income and deduct associated expenses, including repairs, depreciation, mortgage interest, and property taxes. Utilizing tax software or consulting a qualified tax professional can help ensure all eligible deductions and credits are correctly claimed and reported, minimizing potential errors.