Tax deductions

Home Improvements and Tax Deductions: Everything You Need to Know

The renovation boom has skyrocketed in 2021 for a number of reasons, including the ongoing pandemic and a growing number of people working from home. Spending and renovation are expected to remain strong in 2022, with signs that things could slow by the end of the year, according to Harvard’s Leading Indicator of Remodeling Activity (LIRA)

But not all home renovations are treated equally by the IRS.

recommended reading: TurboTax tips on tax-deductible home improvements

“For most people, when you remodel your home, it’s a personal expense, and therefore it’s not tax deductible,” says Jeffrey Levine, CPA and tax expert for Buckingham Strategic Wealth. But there are exceptions.

So before you pick up paint from Home Depot (HD) or maybe plants from Loews ( (L) – Get Loews Corporation report), watch the video above with Robert Powell of Levine and Retirement Daily for tax tips and home improvement deductions and credits.

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More TurboTax: 8 ways to save on home renovations

Video transcript

Robert Powell: Welcome to TheStreet Tax Advice with Jeffrey Levine of Buckingham Wealth Partners. So during Covid many people were upgrading their homes, is there some sort of tax planning opportunity for those home improvements?

Jeffrey Levin: You know, for most people, when you do renovations, it’s a personal expense and therefore it won’t be deductible. Now, of course, every situation is different and that’s why our tax system is so difficult because it’s all about facts and circumstances.

For example, most people if you installed an elevator in your home would be fine, but you don’t need it. But if you, say, we’re in a situation where you were dependent, disabled, and needed that lift as a medical expense. Well, as far as the elevator, the money you spend on that elevator does not improve the overall value of your property.

So, for example, let’s say your house is worth $500,000, you spend $50,000 to install an elevator, and an appraiser comes back afterwards and says $510,000. In other words, your $50,000 expense increased your property value by $10,000, but most people don’t really appreciate a lift, so that doesn’t give it the full 50. Well , that $40,000 becomes a medical expense that could potentially be deductible on your return if that, along with your other medical expenses, exceeds seven and a half percent of your AGI.

There are other things you do that may not be deductible but still provide a tax benefit. For example, energy-efficient upgrades, if you install solar panels on your roof or replace your windows or doors with more energy-efficient options, can create credits for you.

And then, finally, if you’re using your house for, say, a home office, well, that’s not really a deduction for improvements to your house. It’s a business deduction for your office for your business. But, of course, it could also be part of your home. So basically, not really direct inferences, but there are sort of these satellites in orbit, inferences that may apply based on a specific set of facts and circumstances.

Robert Powell: So I can’t help myself, I have to ask for a follow-up. In many cases, would some of these upgrades add to the base of your home when you go to sell it?

Jeffrey Levin: Of course, yes, if you spend money on an upgrade. It’s not like we deduct or depreciate it over time if you don’t rent it. So yes, it would increase the cost of your property. Presumably, when you go to sell it, it would have a lower tax bill. Of course, today for primary residents, very few individuals still, even after the recent boom in the real estate market, very few individuals end up paying income tax anyway when selling their home.

Because if you are single, you can have $250,000 on top of your cost, which is non-taxable and a gain. And if you’re a married couple and you’ve lived there, again, that’s usually you know, you have to do it in both situations, you have to have lived two out of five years there and be House owner. But provided you have that for married couples, that $250,000 becomes $500,000. So a married couple who bought a house for $500,000 10 years ago and invested $100,000 in a new roof and kitchen in the last year is at $600,000. They could sell the house for $1.1 million today and walk away tax-free.

And actually, Bob, chances are they could sell it for more, because expenses like commissions and other expenses can add up to that before you even get there. So most people don’t have a tax bill when they sell their house, but you never know, and if you live there long enough and the price appreciates enough, that would be a big deal to have.

Robert Powell: Jeffrey, thank you for this tax advice, and we know we have more in store for our viewers in the weeks and months to come.

Jeffrey Levin: Well, I can’t wait to be there and join you and answer more questions from readers.