Most home improvements are not tax deductible, but a few specific types are

The IRS does not let you deduct the cost of most home improvements on your tax return. A new kitchen, finished basement, or replaced roof is considered a capital improvement — it adds value to your home, so the cost goes into your home's basis instead. You can only use that basis to reduce capital gains tax if you sell the house later.

However, three categories of home improvements can be deducted in the year you pay for them: improvements that are medically necessary for someone in your household, improvements that make your home more energy efficient (under specific rules that changed in 2023), and improvements that are part of a business use of your home. Each has different rules about what qualifies and how much you can deduct.

Key Takeaways

  • Medical improvements like wheelchair ramps, grab bars, and accessible bathrooms can be deducted as medical expenses if they exceed 7.5 percent of your adjusted gross income for the year.
  • Energy-efficient improvements including insulation, exterior doors, windows, and heat pumps may may have access to for a 30 percent tax credit (not a deduction) under rules that took effect in 2023, with no income limit and no lifetime cap.
  • Home office improvements are deductible only if you use a dedicated room or space exclusively for business, and only the portion of the cost that relates to that space.
  • Capital improvements like new roofs, kitchens, and additions are not deductible in the year you pay for them, though they reduce your taxable gain if you sell the house.
  • The difference between a repair (not deductible) and an improvement (deductible or capitalized) depends on whether the work restores the home to its original condition or adds new value.

Medical home improvements you can deduct

If you or a dependent has a medical condition, you can deduct the cost of home improvements that are medically necessary. These are treated as medical expenses on Schedule A (if you itemize deductions). The improvement must be primarily for the medical care of you, your spouse, or your dependent — not for general comfort or convenience.

Common examples include wheelchair ramps, grab bars in bathrooms, widened doorways and hallways, accessible showers or bathtubs, elevators, stairlifts, and modifications to kitchens or bedrooms to accommodate mobility issues. The cost of labor and materials both count. You can only deduct the amount that exceeds 7.5 percent of your adjusted gross income (AGI) for 2023. If your AGI is $80,000, you can only deduct medical expenses above $6,000.

Some medical improvements may increase your home's value, which complicates the deduction. The IRS allows you to deduct the full cost if the improvement is specifically designed for medical reasons and does not add significant value to the home — for example, a wheelchair ramp. If the improvement does add value (like an accessible bathroom that also increases resale value), you may only deduct the cost that exceeds the increase in home value, though this is rare in practice and depends on a professional appraisal.

Energy-efficient improvements and the 2023 tax credit

In 2023, the rules for energy-efficient home improvements changed significantly. The Inflation Reduction Act created a new tax credit (not a deduction) for certain energy-efficient improvements. A tax credit is more valuable than a deduction because it reduces your tax bill dollar-for-dollar, rather than reducing your taxable income.

The credit covers 30 percent of the cost of may have access to improvements, with no income limit and no lifetime cap. Improvements that may have access to include insulation, exterior doors, windows, roofs with reflective coatings, heat pumps (for heating, cooling, or water heating), biomass stoves, and certain HVAC equipment. You do not need to own the home or live in it full-time to claim the credit — rental properties and second homes may have access to.

The credit is claimed on Form 5695 and is not limited by income. You can claim it for multiple years if you make improvements in different years. Some improvements have specific requirements: windows must meet NFRC standards, heat pumps must meet ENERGY STAR specifications, and insulation must meet R-value requirements that vary by climate zone. Your contractor or the product documentation should confirm whether the specific item meets the standard.

Home office improvements and the business use deduction

If you use part of your home exclusively for business, you can deduct improvements to that space. The improvement must be to the room or area used for business only — you cannot deduct improvements to the rest of the house. The deduction is limited to the percentage of your home that is used for business.

For example, if your home office occupies 10 percent of your home's square footage, you can deduct 10 percent of the cost of improvements that benefit the whole house (like a new roof or HVAC system) and 100 percent of improvements made only to the office (like built-in shelving or electrical upgrades). The improvement must be ordinary and necessary for your business — not personal in nature.

Home office improvements are deducted differently depending on whether you use the simplified method or actual expense method for your home office deduction. If you use the simplified method ($5 per square foot), you cannot deduct specific improvements — the flat rate covers them. If you use the actual expense method, you deduct improvements as part of your home office expenses on Schedule C.

The difference between repairs and improvements

The IRS distinguishes between repairs and improvements. A repair restores your home to its original condition and is not deductible (except as part of a home office or medical expense). An improvement adds new value or prolongs the life of the home and is capitalized — meaning the cost is added to your home's basis rather than deducted when ready.

Fixing a leaky roof is a repair. Replacing the entire roof is an improvement. Patching drywall is a repair. Adding a new wall is an improvement. Repainting the exterior is a repair. Replacing siding is an improvement. The line is not always clear, and the IRS looks at the facts and circumstances. If the work is part of a larger project that adds value, even repair-like work may be treated as part of an improvement.

How capital improvements affect your taxes when you sell

Capital improvements do not reduce your taxable income in the year you pay for them, but they do reduce your taxable gain when you sell the home. The cost of the improvement is added to your home's basis (your original purchase price plus the cost of improvements). When you sell, your taxable gain is the sale price minus your adjusted basis.

If you bought your home for $300,000 and spent $50,000 on a new roof, kitchen, and addition, your basis is $350,000. If you sell for $450,000, your gain is $100,000 instead of $150,000. You may also be able to exclude up to $250,000 of gain ($500,000 if married filing jointly) under the primary residence exclusion, which often means you owe no tax on the sale at all.

Keep records of all improvements you make, including receipts, invoices, and photos. These records are important if you are audited and essential if you sell the home, because you will need to prove the cost and nature of the improvements to calculate your basis correctly.

Frequently Asked Questions

Can I deduct the cost of replacing my HVAC system?

Not as a regular deduction — it is a capital improvement. However, if you replace it with a heat pump that qualifies under the 2023 energy-efficient credit rules, you can claim a 30 percent tax credit on the cost. If the HVAC serves only your home office, you can deduct a portion of the cost as a home office expense.

What if I install solar panels on my roof?

Solar panels are a capital improvement, so you cannot deduct the cost in the year you install them. However, the federal Investment Tax Credit (ITC) allows you to claim a credit for 30 percent of the cost of a residential solar system installed in 2023. This credit is separate from the energy-efficient improvements credit and is claimed on Form 3468.

Are kitchen and bathroom remodels ever tax deductible?

Not for most homeowners. Kitchen and bathroom remodels are capital improvements and add to your home's basis. The only exception is if the remodel is medically necessary (for example, an accessible bathroom for someone with mobility issues) and you can document the medical reason. In that case, you might deduct the cost as a medical expense, subject to the 7.5 percent AGI threshold.

Can I deduct home improvements if I rent out part of my home?

Improvements to the rental portion can be depreciated over time on Schedule E, but not deducted in full in the year you pay for them. Improvements to your personal residence portion follow the rules above — they are capital improvements unless they are medical or energy-efficient. Improvements that benefit both portions must be allocated between rental and personal use.

Do I need receipts to claim the energy-efficient credit?

Yes. You will need documentation showing the cost of the improvement and proof that it meets the required standards. Your contractor's invoice, the product's ENERGY STAR label or NFRC rating, and any certification documents should be kept with your tax return. The IRS may request these if you are audited.