Windows replacement as home office deduction or energy-saving home improvement deduction or both?

[Leddy99]

I am self employed and have an office in my home. Last year we replaced the windows of the house with energy efficient windows. How do I report that expense? In the business section as a home improvement (partial deduction for home office) or in the personal as energy-saving home improvement or both? Thank you!

[PatriciaV · Accepted solution]

How you report this expenditure depends on the relative cost of the window replacement. If the cost is relatively low compared to the total value of the property, the IRS would consider this to be a repair rather than an improvement.

The IRS has issued lengthy regulations explaining how to tell the difference between repairs and improvements. These rules have been published here: Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property

If the windows are a repair, the cost would be included under the Home Office Deduction as a current year expense. If the value indicates this was an improvement, the cost would become another asset under the Home Office to generate depreciation expense.

You may also qualify for the Home Energy Credit, which doesn't make a distinction between repairs and improvements. Here are instructions on how to enter this info in TurboTax:

https://ttlc.intuit.com/replies/4793870

[Leddy99]

Thank you for your very helpful answer. The cost is less than 2% of the total value of the home so I am assuming it is relatively low compared to the total value and can be reported as a repair.

[PatriciaV]

That would be the conservative way to handle it. Plus, you report a larger expense for the Home Office Deduction.