Are Home Improvement Projects Tax Deductible?

Bedford, NH Homeowner Has Questions

Homes that are used solely for personal use cannot have the cost of home improvement projects deducted.  However, if down the road you sell your home for a profit the money paid for home deductions can be deducted from this profit.  This ends up being less of a profit that will be taxed when the home is sold.  If part of the home is used for business and this area is affected by the renovations, you can deduct 100% of this cost.

A Bedford homeowner was looking to remodel his home.  Wondering if there would be any tax savings on these home improvement projects, he contacted the experts at Merrimack Tax Associates.

When the Home is Sold, Improvement Costs Can Be Deducted from the Profit

Down the road when the home is sold, any profit that exceeds what the house was purchased for is taxable income.  Home improvement money invested into the property can be deducted at the time when the house is sold.  This can add up over time and may significantly reduce the amount of taxes you have to pay on profits from the house sale.  These home improvement projects do depreciate over time and may no longer be deductible for the full amount that was paid at the time of the work.

Home Office Improvements are Deductible

If you operate a business out of your home and make improvements to create or modify a home office, the cost of these renovations is tax deductible.  If the home improvement affects the entire home, such as a new HVAC system, the cost that can be deducted will be determined based on the percentage of the home that is used for business purposes.  For example, if 20% of the property is used for business operations, 20% of the home improvement cost can be deducted.

It can be challenging to know when it is appropriate to deduct these types of home improvement expenses.  In the case of the Bedford homeowner, Merrimack Tax Associates was able to offer guidance for this project and future renovations.