Can You Write Off Home Repairs on Your Taxes?

Tax season often prompts homeowners to explore potential deductions, with home repairs frequently coming under scrutiny. Writing off these expenses can provide financial relief, but understanding the nuances involved is crucial.

This article explains how tax laws distinguish between different types of home-related expenses and their eligibility for write-offs.

Distinguishing Repairs From Improvements

Understanding the difference between repairs and improvements is essential for homeowners seeking deductions. Repairs maintain a property’s condition without adding significant value or extending its life. Examples include fixing a leaky faucet or patching a roof. These costs are generally deductible in the year they are incurred.

Improvements, on the other hand, enhance a property’s value, extend its useful life, or adapt it for a new use. Installing a new HVAC system or adding a room qualifies as an improvement. These expenses must be capitalized and depreciated over time, rather than deducted in the year they occur. Misclassifying improvements as repairs can result in penalties and interest on unpaid taxes.

The IRS tangible property regulations, particularly the Repair Regulations under IRC Section 263(a), outline tests to classify expenses correctly. The “betterment” test assesses whether an expense materially increases value, the “restoration” test examines if it restores the property to its original condition, and the “adaptation” test evaluates if the property is adapted for a different use.

Rental Property Repairs

For rental properties, repair expenses can have significant tax implications. The IRS allows landlords to deduct repair costs from rental income, reducing taxable income. Repairs that maintain the property, such as fixing a broken window or repairing an appliance, qualify as deductible expenses.

This immediate deduction is particularly beneficial for landlords managing multiple properties, offering financial relief during high-maintenance years. Property owners must maintain detailed records, including receipts and invoices, to substantiate deductions if questioned by the IRS.

The IRS’s Safe Harbor for Small Taxpayers offers additional benefits. This provision allows qualifying landlords to deduct repair, maintenance, and improvement expenses if they do not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis. This simplifies tax reporting and may increase deductions for smaller landlords.

Home Office Repairs

Home office repairs involve specific IRS guidelines for those claiming the home office deduction. This deduction applies to self-employed individuals or remote workers who use a portion of their home exclusively and regularly for business purposes. Repairs directly affecting the home office, such as fixing electrical issues, are fully deductible. Shared repairs, like roof or HVAC system fixes, can be partially deducted based on the percentage of the home used for business.

For example, if a home office occupies 10% of the home’s square footage, 10% of shared repair costs may be deductible. The deduction can be claimed using the simplified method, which allows $5 per square foot up to 300 square feet, or the actual expense method, which requires precise calculations and documentation.

The Tax Cuts and Jobs Act of 2017 eliminated the home office deduction for employees but retained it for self-employed individuals. Staying informed about IRS updates is critical, as changes to guidelines can affect eligibility and deduction limits.

Recordkeeping for Repair Write-Offs

Effective recordkeeping is vital for homeowners and landlords maximizing tax deductions. Organized records, including receipts, invoices, and payment proofs, serve as evidence to validate claimed expenses and are essential if the IRS audits deductions.

Digital tools like QuickBooks or Xero can streamline recordkeeping. These platforms categorize expenses automatically, generate detailed reports, and provide insights into spending patterns. Maintaining digital backups ensures records are protected from loss due to unforeseen events, such as natural disasters or equipment failures.