Can I deduct home improvements on my tax return?
Home improvement costs only come into play when you sell your home. This is because major improvements add to the cost basis of your home, which is then subtracted from the home's sale price, reducing any gain or profit. More information is in IRS Publication 523, Selling Your Home.
For all practical purposes, major home improvements don't have any effect on your taxes unless your home's value has increased substantially since its purchase. But if you feel that major improvements might help you avoid capital gains tax down the road, you should keep good records in case you need to justify the improvements you've made to the IRS.
Let's find out what the IRS means by major improvement:
- Add materially to the value of your home; or
- Prolong your home's useful life significantly; or
- Adapt your home to new uses.
- Adding a room, garage, deck, paved driveway, or porch,
- Upgrading a roof, water heater, or upgraded wall-to-wall carpeting, tile or wood flooring,
- Installing an upgraded central air or heating system,
- Rewiring or re-plumbing your home to updated codes,
- Adding a built-in pool, gazebo, or hardscaping,
- Making your home fully handicap-accessible.
Major improvements do not include replacement work to maintain the home. While we're at it, here are some common home projects that do not qualify as major improvements:
- Small-scale improvements such as painting a room, replacing a toilet, and re-tiling or re-carpeting the floor,
- Repairs such as fixing a leak, re-plastering a cracked wall, or replacing a window,
- A like-quality replacement washer, dryer, refrigerator, or other appliance,
- Small landscaping improvements like planting flowers, replacing shrubs or a tree,
- Adding a ramp or rail for handicap access.
When a number of small projects are combined into a large project, such as extensive remodeling or restoration of the home or a room, the entire job can be considered an improvement. Also, if you have a casualty and the home is damaged, you can increase your basis (value) by the amount you spend on repairs that restore the property to its pre-casualty condition.
As mentioned above, major improvement expenditures only come into play tax-wise when you sell your home. Here's how to enter a home sale in TurboTax:
- In the TurboTax search box, enter sale of home.and press the nEter key.
- On the Sale of Your Main Home screen, click Yes>.
- The next screen lists the information you'll need in the interviews.
When ready, click Continue.
- Proceed through the home sale interviews.
When you get to the Tell Us About the Purchase of Your Home screen, include the cost of any home improvements in the Adjusted Cost Basis field,
Or click the Easyguide option to let TurboTax figure out your cost basis for you.