Is a Bathroom Remodel Tax Deductible?

Homeowners often wonder if bathroom remodel expenses are tax deductible. For most personal residences, direct tax deductions for home improvements, including bathroom remodels, are not immediately available. The Internal Revenue Service (IRS) typically considers these costs personal living expenses. However, specific circumstances may allow certain remodel costs to offer tax benefits, either as a deduction or by impacting future tax liability.

General Rules for Home Improvement Deductions

Tax law generally considers personal living expenses, including most home improvements like a bathroom remodel in your primary residence, as nondeductible. This means you cannot claim the cost as a deduction in the year incurred.

While not immediately deductible, these improvements can increase your home’s “cost basis.” A capital improvement substantially adds value, prolongs useful life, or adapts the property to new uses. Examples include adding a new bathroom or upgrading major systems. The cost basis is your investment in the home for tax purposes, including the original purchase price plus qualified capital improvements.

Increasing your cost basis reduces the taxable capital gain when you sell your home, potentially lowering capital gains tax. Routine repairs, which only maintain the property, are not capital improvements and do not increase the cost basis.

Bathroom Remodels as Medical Expenses

A bathroom remodel, or part of it, can qualify as a deductible medical expense under specific conditions. The modification’s primary purpose must be for the medical care of the taxpayer, spouse, or dependent. Qualifying modifications include installing grab bars, widening doorways for wheelchair access, or adding a roll-in shower or accessible toilet. These improvements make the home accessible or easier to navigate due to a medical condition.

Only the expense amount exceeding any increase in the home’s value due to the improvement is deductible. For example, if an improvement costs $5,000 and increases the home’s value by $3,000, only $2,000 is potentially deductible. Medical expense deductions are subject to an Adjusted Gross Income (AGI) threshold. You can only deduct unreimbursed medical expenses exceeding 7.5% of your AGI. A doctor’s written recommendation supports the medical necessity of the expense.

Bathroom Remodels for Rental Properties

Tax treatment for a bathroom remodel in a rental property differs from a personal residence. For rental properties, these costs are capital improvements, not immediately deductible expenses. Capital improvements are recovered through depreciation over a specified period, typically 27.5 years for residential rental properties.

Depreciation allows you to deduct a portion of the improvement’s cost each year over its useful life, rather than the full deduction in the remodel year. This differs from repairs, which are generally currently deductible for rental properties. For example, replacing a broken faucet is a repair, while gutting and reconfiguring a bathroom is a capital improvement subject to depreciation.

Essential Documentation and Record Keeping

Maintaining accurate records is important for any bathroom remodel, especially when seeking tax benefits or adjusting your home’s cost basis. These records substantiate claims during an audit or when calculating capital gains upon a future home sale.

Retain all relevant documents, including invoices and receipts for materials and labor costs. Contracts with contractors and proof of payment, such as canceled checks or bank statements, are also necessary. For medical expense claims, a doctor’s written recommendation detailing the modifications’ medical necessity is important. “Before and after” photographs of medically-related remodels can also support the claim during an audit.