If I borrowed from my 401K to pay for the home improvements so the property could be rented, can I claim the amount I borrowed?

Forum|Forum|3 months ago
April 16, 2026
1 reply
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I need help computing the cost of the improvements I did to the property. What can I include?

TurboTax Online

Opus 17

Level 15

The cost of improvements is not deductible. Improvements add to the cost basis of the home and may reduce your capital gains when you sell.

If you take out a loan to pay for improvements, the interest is deductible only if the loan is secured by the home. That means the loan is recorded as a lien against the home with the county records office and the lender could foreclose if you stopped making payments. Since a loan from a 401k is not secured by the home, any interest is not deductible.

You can deduct interest on a loan you take out to improve rental property as a rental expense. However, there is a timing issue because you can't deduct rental expenses until the property is placed in service. That means ready to rent and advertised so that it could be occupied. If you needed to make improvements, the property probably wasn't really "in service" so the interest is not a deductible business expense. You can still include the cost of improvements in your basis, which will give you a larger deduction for depreciation. And even if you could deduct interest on a general bank loan used for improvements to the rental property, you can't deduct the interest from a 401k loan, since the interest is being paid to yourself.