If you’re considering improvements for your home, it’s common to wonder if you can get a tax break on any of your home improvement expenditures. After all, who doesn’t want to save some money — especially on a bigger purchase? So, are home improvements tax deductible? Unfortunately, the short answer to this is that many home improvement expenditures are not, but there are some exceptions for certain projects.
However, just because many home improvements are not tax deductible doesn’t mean that there is no tax benefit. You can use home improvements to add value to your home, giving you a return on your investment when it comes time to sell your house, as well as a tax benefit on the sale profits.
Home Improvements Vs. Home Repairs
Home improvements can mean any work that you complete on your house that substantially improves its value. This can include adding rooms, kitchen or bathroom upgrades, adding decks and fencing, walkway and driveway improvements, electrical and plumbing enhancements, adding a new roof and more. For tax purposes, all of these home improvements are not considered eligible as tax deductions, if you use your home for your personal residence. The value of these improvements, however, can be added to the cost basis of your home to give you potential tax savings when you sell.
Many home maintenance repair projects are not considered “improvements,” as they do not contribute to the overall value of the home, and therefore do not provide a tax benefit on the sale. Maintenance projects like replacing the kitchen sink faucet or fixing a broken window pane fall under this category. While you might see these projects as improvements to your home, according to the IRS, they are returning the house to its original condition or maintaining the condition of the home.
The line between home improvement and home repair is fine. In general, though, basic maintenance and repairs don’t have any tax benefit or home value increase, but major improvements will increase the home’s value and have tax benefits. So, while repairing a broken window pane is viewed as a home repair, replacing several windows with upgraded, energy-efficient models is considered a home improvement.
Tax Deductible Home Improvements
As mentioned before, there are a few exceptions to the rule that home improvements are not tax deductible. The following tax-deductible home repairs qualify:
- Home Office Additions or Improvements: If you work from home or conduct some business at your home, any improvements to your home office area are deductible. If you, say, carpet your whole house, the section of carpet in your home office area would be tax deductible. The carpet in the rest of the house would not be.
- Improvements for Medical Reasons: Modifications made to a home to improve accessibility or safety for aging or disabled residents are improvements that are tax deductible as well. Wheelchair ramps and lifts, safety rails, widened hallways and modified cabinets would all apply under this category. Improvements must be medically necessary to qualify.
- Energy Efficiency Upgrades: Certain improvements that contribute to a home’s energy efficiency, such as adding solar panels, wind turbines and solar water heaters, are also tax deductible.
Tax Breaks and Cost Basis
While many home improvements don’t qualify for tax deductions, they can help you out later, when you’re ready to sell your home. The amount you paid for your home is your cost basis for tax purposes. This matters during the sale of your home because it determines if the profits from your home sale are taxable — and how much will be taxed.
When you sell your home, you’re not taxed on the entire sale price, but on a portion of the profit made. Subtract the price you paid for the home, which is your cost basis, from the selling price of the home to get the amount of profit from the sale. For a single seller, a profit margin higher than $250,000 will be taxable. This amount increases to $500,000 for a married couple who files jointly. For many people, this won’t be an issue. However, for older homes or homes purchased years ago, this can easily come into play in this housing market.
In this case, home improvement costs can help the homeowner increase their cost basis, thereby decreasing the amount of the sale that is considered taxable profit. Improvements made to your home will not only attract more buyers and increase the value of your home but could also save you from paying taxes when you sell. All kinds of home improvements qualify, including room additions, lawn improvements and landscaping, flooring work, roofing work, upgrades to electrical and plumbing systems, new appliances and much more. The IRS details qualifying expenses in Publication 523 and provides more information on eligibility.
Home Improvements That Increase Home Value
Any home improvement that increases enjoyment for the homeowner can be a worthwhile expenditure, but certain improvements are known to attract buyers later and add overall value to a home. The homeowner can see a return on investment for many of these improvements, and as a bonus, increase their cost basis and reduce the taxable profits at the time of sale. Wondering how to increase home value with home improvement projects? Consider the following projects.
1. Kitchen Upgrades
Some basic updates in the kitchen can provide serious returns on your investment. Modern, upgraded kitchens top the wishlists of many new homebuyers today, and a small investment can go a long way. Try a fresh coat of paint on walls, cupboards in updated modern colors, a set of new energy-efficient appliances or new countertops or flooring. A few simple upgrades will give your kitchen new life and attract buyers while upping the value of your home.
One caveat with kitchen upgrades — don’t overdo it. Ripping out the kitchen completely and starting over, or buying all high-end, restaurant-grade appliances and countertops may make for an incredible kitchen, but the huge expense means you will likely not see a full return on your investment. Your upgrades should match the style and scale of the house, as well as the tone of the neighborhood so that you don’t turn off buyers or price them out completely.
2. Bathroom Additions or Renovations
Upgrades to the bathrooms are also sure bets when it comes to added home value. Freshen up existing bathrooms with new paint, mirrors, doorknobs and drawer pulls. Install a new low-flow toilet for added water efficiency or even just a new toilet seat. Updating the shower with new glass doors will make your bathroom look more modern and appeal to buyers.
If your home only has one bathroom, consider adding a second one for a significant return on investment. Think about converting an extra closet or another underutilized space in your home that could work as a bathroom space. A second bathroom will increase the value of your home and appeal to buyers.
3. Adding or Upgrading a Deck
Today’s home buyers are very interested in outdoor living spaces, so the addition of a deck can really add value to your home. With a deck on your home, buyers can see themselves entertaining outside and enjoying the outdoors. You can easily customize the deck’s design with built-in planters or seating for even more added value.
If you’re considering adding a deck or already have one, you can take it one step further by adding on a sunroom. Let in the light and add square footage to your home with a gorgeous sunroom that’s sure to entice buyers. With a wide variety of styles — everything from a covered patio to screen rooms and sunrooms, transforming your outdoor space adds versatility and value. Sunrooms can be customized to be used for extra dining, living or office space — or any extra room you can imagine. They also extend the season for outdoor living and combine the best aspects of both indoor and outdoor space.
4. Upgrades to Electrical or Plumbing Systems
Keeping up with basic maintenance in your home, especially when it comes to your electrical and plumbing systems shows buyers that the home is well taken care of. Address the basics and fix any leaks or problem areas in the home. Buyers will notice the work you’ve put in and see the value in not having to make these fixes themselves later.
5. Converting an Attic or Basement
If your home has an unfinished basement or attic, consider finishing it and turning it into a home office, rec room or playroom — or even an extra bedroom. This upgrade will add usable square footage to your home and increased value for home buyers. Simpler than adding rooms on to a house, this type of upgrade provides a serious return on investment.
6. Energy-Efficient Upgrades
Improving the overall energy efficiency of your home will save you money on electricity and water bills while you still own the home and will be a huge selling point to prospective buyers. If you’re upgrading appliances, choose energy-efficient models. Consider a new, more efficient water heater, high-efficiency toilets and low-flow showerheads. Switching to LED lighting can also be a draw for energy-minded buyers.
One of the best ways to increase a home’s energy efficiency and overall value is with brand new windows. Old, inefficient windows leak air and can cause considerable increases to heating and cooling bills. Replacing these with new, Energy Star-certified windows will lower the energy bills while increasing the value of your home.
7. Beautifying Your Landscaping
Often overlooked as a possible home upgrade, taking care of your landscaping can have a huge impact on your curb appeal and home value. Trim and maintain any existing landscaping and consider adding in some shrubs and flowers to beautify your yard. Hire a professional tree trimmer to assess the safety and appearance of any larger trees on the property. Unkempt trees and bushes detract from a house at any price point, so don’t pass up this opportunity for a fairly easy upgrade.
8. Dressing Up the Front Door
Along with your landscaping, your front door is also key to your home’s curb appeal. One of the first things new buyers see, the front door should look fresh and inviting. Consider an entirely new door or just a fresh coat of paint. Maintain the front steps or patio, make sure the doorbell works and consider adding some plants, decorative elements or lighting. Think about adding in an awning or portico if there is no shelter above your doorway from the weather. These simple upgrades will make your home more inviting and attractive to buyers.
9. Installing New Flooring
Fixing up your floors or installing new ones offers a great return on investment. It could be as simple as repairing a few loose or squeaky boards, having wood floors polished or hiring a professional carpet cleaner. Dingy carpets and flooring in unusual colors turn off potential buyers, so sometimes a full replacement is in order.
If you are replacing your flooring, consider hardwoods — a gorgeous, lasting choice that’s appealing to buyers. If you are adding carpet to rooms, go with high quality and neutral colors. Most real estate professionals agree that flooring upgrades are a good idea and will provide a significant return on your investment.
10. Upgrade the Lighting
New home buyers want to see homes full of beautiful, natural light and home lighting that creates a mood. Take stock of your lighting fixtures throughout the house and consider upgrading any that look dated. Adding in multiple lighting options, dimmer switches or motion detectors on lighting enhances the atmosphere and appeal of a home.
Skylights and sun tubes are another popular option for increasing the natural light in a home and are very appealing to buyers. Sun tubes are somewhat less expensive than installing full skylights, but both can provide plenty of sunlight — or moonlight — to enhance a room. Once installed, skylights and sun tubes reduce the need for electric lighting — an added perk for buyers.
Home Improvements With Garrety Glass
Since 2000, Garrety Glass has provided quality sunroom installations and custom glass projects of all types. We only use high-performance products and have a dedicated, knowledgable staff committed to customer satisfaction. Our experienced team is ready to handle your home upgrades to create the home of your dreams and add resale value to your home. Whether you’re interested in new windows, shower doors, a brand new sunroom or another custom glass project, contact Garrety Glass for more information or a free estimate to help you get started on your home improvement project.