Is a Kitchen Remodel Tax Deductible?
Understand the tax implications of your kitchen remodel. While rarely a simple deduction, the project can lower your tax burden under specific, valuable circumstances.
A kitchen remodel for a personal residence is generally not deductible in the year you complete it. While an immediate write-off is unavailable for most, the cost can provide a future tax benefit. Specific situations involving medical needs, business use, or energy-efficient upgrades can also allow for a current-year tax break.
Capital Improvements and Home Basis
Tax law distinguishes between a repair, which is simple maintenance, and a capital improvement. A capital improvement is a project that adds value to your home, prolongs its life, or adapts it to new uses. A full kitchen remodel with new cabinets, countertops, and appliances is a capital improvement.
The costs of a capital improvement are not deducted annually but are added to your home’s “cost basis.” The initial basis is what you paid for the home, and the remodel cost increases this to an “adjusted basis.” For example, a $300,000 home with a $50,000 kitchen remodel has an adjusted basis of $350,000.
When you sell, your capital gain is the sale price minus your adjusted basis, so a higher basis can lower your tax. Many homeowners will not owe tax on the sale of a primary residence due to the Home Sale Exclusion. Tracking your basis is still a sound practice.
The exclusion allows single filers to exclude up to $250,000 of gain and married couples filing jointly to exclude up to $500,000. To qualify, you must have owned and lived in the home for at least two of the five years before the sale. If your gain exceeds these limits, your adjusted basis will directly reduce the gain subject to tax.
Medically Necessary Renovations
A kitchen remodel may be deductible as a medical expense if its primary purpose is to provide medical care for you, your spouse, or a dependent. This requires modifications prescribed by a physician, such as lowering countertops for wheelchair access or installing specialized fixtures for a physical limitation.
The deductible amount is the total cost of the improvement minus any resulting increase in the home’s value. If a medically required remodel costs $40,000 and an appraisal finds it increased the home’s value by $15,000, the deductible expense is $25,000. Some modifications, like ramps, are presumed not to increase a home’s value and may be fully deductible.
This is claimed as an itemized deduction on Schedule A (Form 1040). You can only deduct the portion of your total medical expenses that exceeds 7.5% of your Adjusted Gross Income (AGI). Due to this threshold, not all taxpayers who make these improvements will receive a tax benefit.
Home Office and Rental Property Scenarios
If part of your home is used for business, a portion of the remodel cost might be deductible. The kitchen must meet the “exclusive and regular use” test, such as for a professional caterer who uses their home kitchen solely for their business. In this case, the business portion of the remodel costs would be depreciated over time.
For a kitchen remodel in a rental property you own, the rules are different. The property is an income-producing asset, so the remodel is a capital improvement to the business property. The entire cost must be capitalized and depreciated over the 27.5-year useful life of a residential rental property. A $22,000 remodel in a rental would generate an annual depreciation deduction of about $800.
Energy Efficiency Tax Credits
A kitchen remodel can provide access to tax credits, which reduce your tax liability dollar-for-dollar. This is different from a deduction, which only reduces your taxable income. The Energy Efficient Home Improvement Credit applies to certain high-efficiency items installed during a project.
Qualifying expenses include new exterior doors, windows, or skylights that meet energy-efficiency standards. The credit is for 30% of the cost of these improvements, with an annual limit of $1,200. A separate credit limit of up to $2,000 annually is available for installing qualified heat pumps or biomass stoves.
This credit is claimed using IRS Form 5695, Residential Energy Credits, and the home must be your principal residence. The credit applies to building components and specific equipment, not typically to kitchen appliances.
Required Documentation
For Capital Improvements
To support an increase to your home’s basis, you must save all documents related to the remodel. These records should be kept for as long as you own the home plus at least three years after you file the tax return for the year the home is sold. Required documents include:
- Detailed contracts with laborers
- Invoices for materials and services
- Proof of payment, such as canceled checks or credit card statements
- Building permits
- Before-and-after photographs
For Medical Expenses
To claim a remodel as a medical expense, you need a written statement from a doctor detailing the medical necessity of the improvements. You will also need a formal appraisal from a qualified appraiser to determine the increase in the home’s value, which is required to calculate the deductible portion.
For Energy Credits
When claiming energy tax credits, you must keep receipts for qualifying purchases and the Manufacturer’s Certification Statement for each product. This statement confirms the item meets the required energy efficiency standards. You must also have the product identification number for each component.
For Business or Rental Use
For a home office or rental property, you must keep records that support your allocation of the remodel costs if it is a mixed-use property. You also need to maintain a clear depreciation schedule showing the annual deduction taken for the rental property improvement.