Know the Difference — Home Repairs vs Improvements — for Your Taxes

Know the Difference: Home Repairs vs. Improvements for Your Taxes

As a homeowner, you’ll likely need to make updates or fixes to your home, but knowing whether the work is a repair or an improvement can make a difference at tax time! Some home improvements can provide tax benefits, while repairs generally do not.

Repairs vs. Improvements: What You Need to Know

The IRS defines repairs and improvements differently, and understanding the distinction can help you maximize tax benefits.

• Repairs: Restore your home to its original condition but don’t increase its value (e.g., fixing a leak, replacing a broken appliance, patching a roof shingle). Repairs cannot be deducted or provide a tax credit.
• Improvements: Increase your home’s value or extend its life (e.g., installing a new roof, upgrading an HVAC system, adding a room). Many improvements can be deducted or qualify for a tax credit.
• Maintenance: Prevents future issues but doesn’t restore or improve functionality (e.g., gutter cleaning, HVAC servicing, pest control). Maintenance generally does not qualify for tax benefits.

Note: If you own an investment property, tax rules differ. Repairs can often be deducted immediately, while improvements are capitalized over time. This article focuses on personal residences.

Tax Benefits for Home Improvements

To take full advantage of tax benefits, keep detailed records of any improvements, including receipts and labor costs. Here’s where they may apply:

• When Selling Your Home: Some deductible improvements only impact your taxes when you sell. Your home’s adjusted tax basis includes your purchase price plus the cost of all improvements. Keeping good records can help lower taxable profit when you sell.
• Energy-Efficient Tax Credits: If you install Energy Star-rated windows or solar panels, you may qualify for a tax credit in the year of installation.
• Medical or Home Office Deductions: If you make accessibility improvements (e.g., wheelchair ramps, stair lifts) or remodel a dedicated home office, you may be eligible for a tax deduction. Consult a tax professional to confirm eligibility.

Three Ways to Be Prepared

1. Know the difference between a repair and an improvement so you can plan accordingly.
2. Keep records of improvements and costs. Use a filing system that works for you—whether it’s digital or paper receipts.
3. Consult a tax advisor to ensure you’re maximizing potential deductions and credits.

Staying informed about home-related tax benefits can help you make smarter financial decisions. If you have any questions or need a recommendation for a tax professional, feel free to reach out to me at jennifer@movewithmestayer.com.