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Home Improvements That Are Tax Deductible - Quicken Loans Zing Blog

In most situations, home improvements made to primary residences are considered personal expenses, which means they’re not tax deductible. There are a few exceptions to this rule, though, which can earn you and your household some pretty enticing tax benefits in the coming years. Let’s check out the ins-and-outs of home improvements that can help you make the most of your refund during tax season.

Going Green

Who ever said going green has to be expensive? The Residential Energy Efficient Property Credit is an incentive for taxpayers to purchase alternative energy products and equipment for their home, such as solar hot water heaters and wind turbines. The home renovation tax credit covers 30% of the cost, and with the exception of fuel cell property, there’s no cap. In most cases, even the cost of labor will fall under this category, so it’s a great perk for the environment-minded homeowner.

Word to the wise: Make sure the alternative energy product qualifies for this tax credit before purchasing it. You can check for the manufacturer’s tax credit certification statement, which will either be on their website or the product packaging.

You should also hurry up and get this credit before it’s too late! It runs out at the end of 2016. Start putting up those solar panels now!

Improvements That Double as Medical Expenses

If a home improvement is medically necessary, it may be deducted under medical and dental expenses as long as the total cost of these expenses exceeds 10% of your adjusted gross income (or 7.5% if you or your spouse is 65+).

These home improvements include widened doors for wheelchair access, ramps, handrails, warning systems, in-home elevators and much more. If the home improvement does not increase the value of the home, it can be fully deducted. But in the event that the home improvement adds value, the difference between the cost of the home improvement and the increase in the home’s value is deductible. For example, let’s say you put in a pool for therapeutic reasons and it cost $10,000 but only added $8,000 in value to your home (as measured by an appraisal). This means that you can deduct $2,000.

Home Office Deduction

If you work from home, you may be able to deduct the cost of certain improvements in this space. This deduction includes regular maintenance and repair, such as putting in new carpet or hiring someone to paint the space. You can even deduct home office supplies like a work computer, office supplies or a cell phone.

In order to qualify for this deduction, this space will need to be exclusively used as a home office (it can’t double as anything else), and it needs to be used for business purposes on a regular basis. However, “regular” is a loose term and doesn’t necessarily mean you have to be in that space eight hours every day. In an interview with Forbes, tax expert Barbara Weltman explains that this deduction doesn’t only apply to full-time businesses. “If you have a part-time business from home and work on it one day a week, that’s OK,” she says. “The key is that you use the office on a constant basis, not necessarily daily.”

While home improvement deductions are few and far between, some of them can help your bottom line, come tax season. If you’re interested in more tax talk, check out these strange tax deductions!

This Post Has 24 Comments

  1. So if one were to do a 1000 sq ft addition to their house, and 100 sq feet of it was for a legitimate home office, would they deduct 10% of the construction costs?

    By the way, I’ve financed/refinanced with Quicken 4 times. Easy, and fast compared to other companies. And it beat the best deal i could find by $7000 in expenses in one case.

    1. Hi Tiny House:

      From what you’re saying, that sounds like it might be the case, but I would consult a tax adviser just to be sure. It’s awesome to hear that you’re a repeat client! It’s been a pleasure to serve you.

      Kevin Graham

  2. The thing that I did not understand after our mortgage was final.The next day we received paper to sign.And was told that they wanted them right back concerning our closing cost..We had received a form in the mail that we could have a military 2,75. The agent never consider that amount.’I have always told people to go to Quicken Loan they are they best. But after my last experience I don’t know. We ended up with a 3.5. What about that. really confuse……..

    1. Good morning, Sandra:

      We’re very sorry to hear you’ve had this experience. Thanks for reaching out and giving us the opportunity to look into this. We’re currently researching your situation and we’ll be in contact.

      Kevin Graham

  3. I have lived in my home for well over two years. I’m thinking of selling my farm in another state. I have also owned it for more than two years. Do I have to pay capital gains on farm? If I do, if I invest proceeds into my residence will this relieve capital gain?

    1. Hi Scot:

      In order to avoid capital gains tax on the farm, you have to live there as your primary residence for two years or more in the last five years. Here’s information from the IRS website.

      Kevin Graham

  4. Thank you for the article, However, regarding the impact of increasing the tax basis, the Tax Payer Relief Act of 1997 allows a tax-free profit of up to $250,000 (or $500,000 if married filing jointly) for sale of a primary residence. So, the homeowner would not necessarily be taxed on the $100K profit as described in your scenario.

    1. Thanks for the eyes, April! We’re currently looking into this and will make any necessary updates shortly. Have a good day!

  5. Your first point is basically null. The IRS provides a home gain exclusion of $250k per taxpayer if you have lived in your home for 2 out of the last 5 years at the date of sale. The majority of taxpayers will not pay taxes on the sale of their home, so increasing the basis does nothing to reduce tax that is not there. You can even take a portion of this gain if less than 2 years in certain circumstances.

    1. Hi Shannon:

      We really appreciate the eyes. We’re currently looking into this to verify the information you and others have pointed out. When that’s done, we’ll make any necessary updates to the article. Thanks again!

      Kevin Graham

  6. I’d like to state that Quicken Loans® is the single most hassle free financial transaction of my life. I refinanced my thirty year mortgage for a new 15 year loan at less than 3 % and $ 3,400.00 closing costs, including prepaid items. I’m old, bought and sold a lot of houses, and I’m here to tell you, these people have it figured out. Totally. Great Experience.

  7. Confused? Live in the home for 2 years and you don’t pay capital gains tax! put as much money into it as you want!

    1. Thanks Matt! Your point is well taken. The tax basis issue may not apply for most people, although there are limits to how much you can deduct. I’m going to get this updated, but keep in mind tax requirements may be different on the local and state level.

  8. If a new roof or a non insurance repair is needed…is that a personal loan or a second mortgage…I don’t know too many people who have ready cash for a new roof.

    1. Hi Nancy:

      For the purposes of getting the best rate, the best possible option for this might be a cash-out refi, but I’m going to pass this to someone that can help you look deeper into your options.


  9. Outdated and I really don’t know why it wasn’t proofread. Is this email really from 2011 ? Click on the IRS guidelines for the credits. Very unusual for Quicken to make any kind of mistake.

    1. That’s a great point, Bruce! I’m not sure why they call it a hot water heater now that I think about it.

    2. Great point. Reminds me of a statistically incorrect commercial from the flash bulb days when the customer got 5 perfect flashes from her blue dot flash attachment. Mr. Announcer said she could have done better because their tests showed a 96% success rate on flashes. I wrote to them to complain that there is no way you can improve on 5 for 5 100% performance. They took the ad off the airways.

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