« »

Monday, February 3, 2014

What home improvements are tax deductible?

Home ownership has numerous tax benefits, and making adjustments to your home can be lucrative.  However, the tax benefits gained by making improvements are not very straightforward; it's a good idea to be well-informed before you start any projects.

Making improvements to your primary residence is not tax deductible in and of itself. Home improvements that increase the value of your home are personal expenses. But there are several ways you can receive a tax benefit from making home improvements.

Image Courtesy of Shutterstock

Making home improvements that increase your home's value

When you make substantial improvements to your home - such as roofing, renovating a room, adding a new bathroom, an addition, or exterior improvements like walkways, driveways, fences or landscaping - it increases your home's basis - that is, the amount invested into your home. For example, if you buy your home for $400,000 and you make $50,000 worth of improvements, your basis increases from $400,000 to $450,000. 

Why does this matter? When you sell your home, you would hope to sell it at a profit.  However, if your basis is higher than when you bought the home, your profit will drop. The only amount that is subject to taxes, when you sell your home, is the amount of profit. So, if you sell your home for $600,000, your profit will be $150,000 instead of $200,000 and you will only be taxed on that amount.  (You may also qualify for other tax benefits, such as the home sale tax exclusion, upon sale of your home. Check with your tax advisor.)

Image Courtesy of Shutterstock

Renting part of your home

If you rent out a part of your home, you can count some of your home improvement costs as rental expenses. That is, improvements to a rental property are handled differently by the IRS than improvements to a personal property. Thus, you can deduct the cost of home improvements over several years. You and your tax advisor will need to do some math to determine what percentage of your property can be considered a rental property and how much of the expense of improving your home can be deducted.

Using part of your home for a business

Using part of your home for a business is another way to reduce some of your home improvement costs.  For improvements made solely to the home office, you may deduct 100 percent of the cost, so long as your home office is used exclusively and regularly for business purposes. If you make other improvements to your home, you may be able to deduct a percentage of the costs based on the percentage of your home being used for business purposes - much like the rental situation described above. 

While making improvements to your home is not an automatic way to gain tax benefits, there are several options for benefiting from beautifying your home. Before you begin any home improvement project, make sure you know the current value of your home and the amount you have invested in it (your basis). Also, gather together any information you have about rental or business use of your property so that you have it available when it's time to file. The more information you have available, the more likely it is that you will receive some tax benefits from improving your home.

This article was written by Richard Craft, an MBA student who hopes to help you with your personal finances. He recommends considering Texas Stone Sealers, your number one choice when performing home improvement projects that involve sealing and cleaning flagstone. Take a look at their website today and see how they can help you!


  1. Thanks for the fantastic post! This information is really good and thanks a ton for sharing it :-) I m looking forward desperately for the next post of yours..

  2. Nice post.Renting part of home
    is really a nice thought.