Are Home Improvements Tax-Deductible? What Homeowners Need to Know
You just spent $30,000 on a new kitchen or $15,000 remodeling your bathroom. Naturally, you’re wondering, “Are home improvements tax-deductible? It would be nice if the IRS offered tax breaks to offset the cost.”
The short answer is that most home improvements won’t give you an immediate tax deduction. But that doesn’t mean they have no tax value. Some can reduce your tax bill when you sell the home. Others may qualify for a deduction if you finance the improvements, they are medically necessary or you use part of your home for business.
The rules aren’t complicated once you know where to look. So let’s break it down.
- Most home improvements aren’t immediately tax-deductible, but they still have tax value.
- Many home improvements increase your property’s cost basis, which reduces potential capital gains when you sell.
- A handful of exceptions allow for current tax benefits, including home office improvements, medically necessary modifications and renovating rental property.
What counts as a home improvement for tax purposes?
The IRS doesn’t treat all home projects equally. What you spend money on determines whether the project qualifies for any tax breaks.
A home improvement adds value to your home, prolongs its useful life or adapts it to a new use. Qualifying home improvements increase your “cost basis.”
When you eventually sell the property, a higher cost basis means a smaller taxable gain.
For example, say you bought your home for $350,000 and made $50,000 in improvements. Your adjusted cost basis is now $400,000. If you sell the home for $650,000, your gain is $250,000, not $300,000. (We’ll get into whether that gain is taxable below.)
A home improvement adds value to your home, extends its useful life or adapts it to a new use. A home repair maintains your home in its current condition. Repairs don’t increase the property’s cost basis; improvements do.
Examples of home improvements include:
- Adding a room, deck or garage
- Installing a new roof, windows or doors
- Renovating a kitchen or bathroom
- Installing central air conditioning or a security system
Examples of home repairs include:
- Fixing a leaky faucet
- Repainting a room
- Patching a hole in the drywall
- Replacing a broken window pane
- Unclogging a drain
How do ‘capital improvements’ work?
A “capital improvement” is the IRS’s formal term for a home improvement that adds value to your property. Not every project qualifies. To meet the IRS standard, the improvement must add value to the new home, adapt it for a new use or meaningfully extend its useful life. A fresh coat of paint doesn’t meet that bar. A new roof does.
Capital improvements increase your cost basis, which directly reduces the capital gain when you sell.
The IRS allows homeowners to exclude up to $250,000 of gain from the sale of a primary residence ($500,000 for married couples filing jointly). Any gain above that threshold is taxable.
Returning to the example above, you paid $350,000 for your home, made $50,000 in improvements, and sold it for $650,000. Assuming you’re single and meet the other requirement for the home sale exclusion, you can exclude 100% of your $250,000 gain.
Now, let’s assume you didn’t make the improvements, but the sales price was still $600,000. In that case, you would have to pay taxes on $50,000 of capital gains.
So the higher your cost basis, the less likely you are to exceed the home sale exclusion limit.
Home improvements that may provide tax benefits
Most home improvements won’t give you a tax benefit right away, but there are a few exceptions. Depending on how you use your home and the type of improvements you make, you may qualify for a tax credit or tax deduction.
Energy-efficient improvements
At times, the federal government incentivizes energy-efficient home improvements through the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit. These credits help offset the cost of installing solar panels, solar water heaters, heat pumps, insulation, energy-efficient windows and doors and home energy audits.
However, both home improvement tax credits expired on Dec. 31, 2025. If you made qualifying improvements in 2025, you can claim them on your 2025 tax return. But they’re no longer available for home improvements made in 2026 and beyond.
Home office improvements
If you’re self-employed and use part of your home regularly and exclusively for business, you may be able to deduct some or all of those improvements.
The amount you can deduct depends on whether the improvement is direct or indirect. Direct improvements apply only to the part of the home you use for business. Indirect expenses apply to your entire home.
For example, say you have a woodworking business and you use a separate structure on your property as a woodworking shop. If you rewire the shop, that’s a direct expense, and you can deduct 100% of the cost of rewiring.
However, if you have a home office and remodel a bathroom, that’s an indirect expense and your deduction is proportional. If your home office takes up 10% of your home’s square footage, you can only deduct 10% of the cost of the bathroom remodel.
Medically necessary improvements
Home improvements required for medical reasons may be deductible as a medical expense. But you can only deduct the costs that exceed the improvement’s added value to your home.
For example, say you install a wheelchair ramp that costs $10,000 and adds $4,000 to your home’s value. Only $6,000 qualifies as a potential medical deduction. If the renovation doesn’t increase your home’s value, the entire cost counts as a medical expense.
You only benefit from these deductible home improvements if you itemize deductions and your total deductible medical expenses exceed 7.5% of your adjusted gross income (AGI).
Rental property improvements
The rules are different if you make improvements to a rental property. Rather than adding them to your cost basis, you can depreciate these improvements over time. Depreciation allows you to deduct a portion of the cost each year against your rental income.
For example, say you spend $15,000 to remodel the bathroom in a rental property. The IRS allows you to depreciate the cost of most residential rental property over 27½ years. So you would be able to deduct approximately $545 per year ($15,000 ÷ 27.5).
How to track and claim home improvement expenses for tax purposes
Staying organized throughout your home ownership journey (not just at tax time) ensures you have what you need to claim available tax benefits. Here’s how to do it right.
- Start a home improvement file the day you close: Create a dedicated folder, physical or digital, specifically for home improvement documentation. Include your closing statement, which establishes your original cost basis.
- Document qualifying improvements: Save receipts, invoices, contractor agreements, permits and any other documentation to support the cost, timing and nature of each home improvement. Normally, the IRS recommends keeping tax records for three years. However, you should keep records supporting the real estate cost basis for at least three years after you sell the property and report the transaction on your tax return.
- Separate home improvements from repairs: Mixing up the two can create problems during an IRS audit. Label each expense clearly so you can easily identify what increases your cost basis and what doesn’t.
- Update your cost basis annually: Add qualifying improvements to your running cost basis total at the end of every year. Don’t wait until you’re ready to sell to look at this. It’s easy to lose receipts or forget about projects that happened years ago.
- Work with a tax professional: Claiming home office expenses, medical expense deductions, depreciation on a rental property or an excluded gain on the sale of a home involves specific IRS forms. It’s easy to get the calculations wrong if you’re not familiar with the rules. A CPA or enrolled agent (EA) can help you claim every benefit you’re entitled to and potentially lower your tax bill.
Should you finance your home improvements if they’re not tax-deductible?
Just because a home improvement isn’t immediately tax-deductible doesn’t mean financing it is a bad financial decision. The right answer depends on your specific situation, including how much equity you have in the property, the interest rate you qualify for and the nature of the project.
There are three main home improvement financing options for homeowners:
- Cash-out refinance: It replaces your existing mortgage with a larger one. You can use the difference for home improvements or another purpose.
- Home equity loan: A lump-sum loan secured by your home equity.
- Home equity line of credit (HELOC): This is a revolving credit line you can borrow against and repay multiple times. It’s also secured by your home equity.
Whichever option you choose, the interest may be tax-deductible if you use the proceeds to buy, build or substantially improve the property securing the loan.
If you tap your home equity to consolidate credit card debt or fund a vacation, that interest isn’t deductible. If you use it to add a primary suite or replace your HVAC system, you may be able to deduct the interest, as long as you itemize and don’t have more than $750,000 of home mortgage debt ($375,000 if you’re married and file a separate tax return from your spouse).
When it makes financial sense to borrow
Here are a few scenarios in which it might make sense to finance your home improvement project.
- The project adds value or addresses a critical need. Borrowing to replace a failing roof or add square footage is different from borrowing for cosmetic upgrades that don’t increase your home’s market value.
- You can comfortably afford the monthly payments. When you use your home as collateral, defaulting puts your property at risk.
- You qualify for a reasonable interest rate relative to current market conditions. If you have bad credit, it’s harder to qualify for a loan or get an affordable interest rate. In that case, it makes more sense to pay cash or work on improving your credit score before financing home improvements.
- You plan to stay in the home for a while. If you plan to sell within a few years, consider whether the improvement will realistically increase your sale price enough to justify the borrowing cost.
- You have an alternative use for your cash. If financing frees up liquid savings for an emergency fund or higher-return investment, the trade-off may be worth it, even without a tax benefit.
Frequently asked questions
In most cases, remodeling a bathroom in your home isn’t directly tax-deductible in the year you complete it. Instead, it qualifies as a capital improvement, which increases your cost basis and reduces your taxable gain when you sell.
However, if the remodel is part of a medically necessary modification, such as installing grab bars or a walk-in shower for a disability, a portion may qualify as a medical expense deduction.
Remodeling your kitchen generally isn’t tax-deductible in the year you pay for it. It’s a capital improvement that increases your cost basis. That higher basis works in your favor when you sell because it reduces your taxable gain.
Typically, new flooring is a capital improvement, meaning it increases your cost basis rather than providing an immediate tax deduction. The exception is if you install the flooring in your home office. In that case, it may be deductible. Document the cost carefully, especially if the flooring spans both personal and business-use areas of your home.
Putting a new roof on your home generally isn’t tax-deductible. It’s a capital improvement that increases your cost basis. That means it reduces your taxable gain when you eventually sell the property.
However, if you install a new roof on a rental property, you can depreciate the cost over 27½ years. This lets you write off a portion each year and lowers your taxable rental income.
The tax treatment of home improvements depends on the nature of the project, not who did the work. If the project qualifies as a capital improvement, it adds to your cost basis, regardless of whether you hired a contractor or did the work yourself. However, you can only include actual out-of-pocket costs like materials, permits and equipment rentals. You can’t count the value of your own labor.
In general, home improvements on a rental property aren’t immediately deductible in full. You depreciate them, meaning you can deduct a portion of the cost each year over the expected useful life of the improvement. IRS rules allow you to depreciate residential rental improvements over 27½ years.
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