For tax purposes, a home improvement includes any work that:
Examples of home improvements include:
Can you deduct home improvements? If you use your home purely as your personal residence, the answer is "no." You can't deduct the cost of home improvements. These costs are nondeductible personal expenses.
But home improvements do have a tax benefit. They can help reduce the amount of taxes you have to pay if and when you sell your home at a profit.
The cost of home improvements are added to the tax basis of your home. "Basis" means the amount of your investment in your home for tax purposes. The greater your basis, the less profit you'll get when you sell your home.
Home improvements are the most common way homeowners increase their basis.
But your home's basis doesn't include the cost of improvements that were later removed from the home. For example, if you installed a new chain-link fence 15 years ago and then replaced it with a redwood fence, the cost of the old fence is no longer part of your home's basis.
Although you can't deduct home improvements, it's possible in some situations to depreciate them. "Depreciation" means that you deduct the cost over several years—anywhere from three to 27.5 years.
To qualify to depreciate home improvement costs, you must use a portion of your home other than as a personal residence.
One way you can depreciate home improvement costs is to have a business and use a portion of the home as an office for the business. To qualify for the home office deduction you must have a legitimate business and use part of your home exclusively and regularly for the business.
If you qualify for this deduction, you can deduct 100% of the cost of improvements you make just to your home office. For example, if you use a bedroom in your home as a home office and pay a carpenter to install built-in bookshelves, you may depreciate the entire cost as a business expense.
Improvements that benefit your entire home are depreciable according to the percentage of home office use. For example, if you use 20% of your home as an office, you may depreciate 20% of the cost to upgrade your home heating and air conditioning system.
Another way to depreciate home improvement costs is to rent out a portion of your home. This enables you to depreciate the expense as a rental expense. This amount is deducted from the rental income you receive.
As with the home office deduction, improvements that benefit only the portion of the home being rented can be depreciated in full. Improvements that benefit the entire home can be depreciated according to the percentage of rental use of the home.
Repairs are things you do to your home that don't substantially add to its value, increase its useful life, or adapt it to new uses. For example, adding a new roof to your home is an improvement. But replacing a few loose shingles on your roof is a repair.
Repairs to your personal residence aren't tax deductible and they don't increase the basis in your home. In other words, they have no tax impact.
But, if you have a tax deductible home office, repairs are deductible. Likewise if you rent out all or part of your home. Repairs just to your home office or a room you rent full-time are 100% deductible. The cost of repairs that benefit your entire home—roof repairs, for example—must be allocated according to to the percentage of rental use of the home. For example, if you use 20% of your home as a home office and spend $1,000 to repair the roof, you can deduct $200.
If you have questions about whether you can write off home improvements or repairs, contact a tax lawyer.
]]>Home improvements can be deductible as a medical expense if their main purpose is medical care for you, your spouse, or your dependents. These expenses are fully deductible subject to the limits discussed below if they don’t increase the value of your home. Examples of such fully deductible expenses are improvements to make your home wheelchair accessible or to make it easier for a disabled person to get around the home, including:
However, some improvements increase the value of your home—for example, installing an elevator so that a disabled person doesn't have to use stairs, or installing a new bathroom on the ground floor of your home to avoid having to use stairs. For these types of improvements, you must reduce the amount of your deduction by the increase in the value of your home.
It can even be possible to deduct the cost of adding a swimming pool to your home. However, the use of the pool must be prescribed by a doctor as medical treatment or physical therapy. Thus, for example, you can't deduct the cost of a pool because swimming is good exercise. Moreover, the IRS may question the deduction unless the pool is specially designed for medical treatment. For example, the IRS permitted a deduction by an osteoarthritis patient whose doctor prescribed swimming several times a day as treatment. He built a special indoor lap pool with specially designed stairs and a hydrotherapy device.
You can also deduct amounts you pay for the operation and upkeep of an improvement, as long as the main reason for them is medical care. This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense.
However, there are two tax rules that work together to limit or eliminate entirely your medical expense deduction for home improvements:
First, you can deduct home improvements as medical expenses only if you itemize your personal deductions instead of taking the standard deduction. If you don’t itemize, you get no deduction for your medical expenses, including home improvements. Changes brought about by the Tax Cuts and Jobs Act that took effect in 2018 make it far more difficult for most taxpayers to itemize than in the past.
You should itemize only if all your deductible personal expenses exceed the standard deduction. The TCJA almost doubled the standard deduction to over $12,000 for single taxpayers and nearly $25,000 for married couples filing jointly (as almost all do). This means you have to have a lot of personal deductions to itemize. However, the TCJA limited or eliminated personal expenses that used to be deductible. Only the following personal expenses may be deducted by itemizers:
In the past, about 30% of all taxpayers itemized their personal deductions. As a result of the TCJA's changes, only about 10% of taxpayers are able to itemize today.
However, you could fall within the 10% who itemize if your deductible home improvement expenses are substantial and/or you have many other personal deductions such as charitable contributions and home mortgage interest.
The other major impediment to deducting home improvements as medical expenses is that you can’t deduct the full cost of such expenses, even if you itemize. You can deduct only the amount they and all your other deductible medical expenses exceed 7.5% of your adjusted gross income (AGI). Your AGI is your total taxable income, minus deductions for retirement contributions and one-half of your self-employment taxes (if any), plus a few other items (as shown at the bottom of your Form 1040).
Thus, for example, if your AGI is $100,000, you can deduct your home improvements and other medical expenses as an itemized deduction only to the extent they exceed $7,500. If you have $10,000 in total medical expenses, you can deduct only $2,500. You would add the $2,500 to your other deductible personal expenses and, if they total more than the standard deduction, you would deduct them as an itemized deduction. On the other hand, if you have a $100,000 AGI and your medical expenses are less than $7,500, you would not be able to deduct them at all.
Be sure to keep track of all the medical-related expenses you pay during the year in addition to home improvements because they could add up. Such expenses include out-of-pocket payments for prescription drugs, dental care, chiropractic care, eye exams and glasses or contacts, medical insurance, Medicare payments, deductibles, and co-pays. You can find an exhaustive list of deductible home expenses in IRS Publication 502, Medical and Dental Expenses.
Because of the AGI threshold on deducting home improvements as a medical expense, it’s advisable to bunch such expenses together into a single year. For example, if you want to install exit ramps and a stairway lift in your home, have all the work done in a single year. This will give you as large a deduction as possible for that year. You should follow this strategy for your other deductible personal expenses as well, such as charitable contributions.
]]>As far as taxes are concerned, repairs to a personal residence are meaningless. The only way you can deduct all or part of the cost of home repairs for your residence is if you qualify for the home office deduction or rent out part of the home.
You can deduct all or part of home repair costs if you have a business and use a portion of the home as an office for the business. To qualify for the home office deduction you must have a legitimate business and use part of your home exclusively and regularly for the business.
If you qualify for this deduction, you can deduct 100% of the cost of repairs you make just to your home office. For example, if you use a bedroom in your home as a home office and pay to replace broken window with a similar window you may deduct the entire cost.
Repairs that benefit your entire home are deductible according to the percentage of home office use. For example, if you use 20% of your home as an office, you may deduct 20% of the cost to repair your home heating and air conditioning system.
Another way to deduct home repair costs is to rent out a portion of your home. Then you can deduct all or part of the expense as a rental expense. This amount is deducted from the rental income you receive.
As with the home office deduction, improvements that repair only the portion of the home being rented can be deducted in full. Repairs that benefit the entire home can be deducted according to the percentage of rental use of the home.
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