What Home Improvements Are Tax Deductible In 2026?

Home improvements can breathe new life into an outdated home – and sometimes they can lessen your tax burden. The cost of certain home improvements – not all – are tax deductible the year you incur the expenses. Other improvements may increase your home’s cost basis and help you save on capital gains taxes when you’re ready to sell. But not every repair or upgrade comes with a reward from the IRS. Which home improvements are tax deductible now? Which will reduce future tax bills? Here’s what to know for 2026.

Home Improvements Vs. Home Repairs

It’s important to distinguish between home improvements – also called capital improvements – and home repairs when considering tax deductions.

Home improvements expenses are generally not tax deductible in the year you pay for them. But they increase your home’s cost basis – the amount you paid for your home plus the cost of any qualified improvements – which can save you money later. The IRS taxes the profit you make when you sell your home, so when you add to your cost basis, you lessen the capital gain and the tax you pay on it.

To qualify as an improvement, the upgrade must do one or more of the following:

A repair, on the other hand, maintains the current condition instead of adding new value.

Capital Gains Tax When Selling Your Home

The cost of your home improvements can be used to save on capital gains tax when you sell your home. When most people sell their primary residence, they can avoid paying capital gains tax on a portion of their profit, but there are limits. If you’re a single filer, you can exclude up to $250,000 in profit, or a maximum of $500,000 if you file a joint return.

The profit is based on your cost basis, which includes the price you paid for the home as well as the cost of any capital improvements you made. That means it’s important to track your improvement expenses so you can lower your profit when it comes time to sell your home.

Tax Deductions Vs. Tax Credits

Are home improvements tax deductible? Some may be, but first, you need to know the difference between a tax deduction and a tax credit. A deduction reduces the amount of your taxable income. A credit reduces the amount of tax you owe. There are both tax deductions and credits related to certain home improvements, and each can impact your taxes in different ways.

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Home Improvement Tax Deductions And Credits For 2026

Navigate your home-improvement tax deductions and credits to find out whether your upgrades can lessen your tax burden.

Business-Related Improvements

Homeowners who operate a business out of their home may be allowed to deduct office improvements as a business expense. In order to qualify, you must “exclusively and regularly” use a portion of your home or separate structure (like a garage) as your primary business location. You must be self-employed in order to qualify. This tax deduction doesn’t apply to remote workers who are employees of another company.

You can deduct the whole amount if the improvements are made only to the office area. Or you can deduct the cost of certain whole-home improvements – repairs or upgrades that benefit the entire house – based on the percentage of home floor space that’s solely used for your business.

Common office improvements that you may be able to deduct in full include:

Whole-home improvements that may entitle you to partial deductions include:

Medically Necessary Improvements

Homeowners often make home improvements to benefit their health and mobility. You’re allowed to deduct any eligible medical expenses over 7.5% of your adjusted gross income. This includes any capital expenses spent with the main purpose of medical care for you, your spouse or a dependent.

Common improvements include:

When you make home improvements for medical reasons, you can deduct only the part of the cost that exceeds any increase in your home’s value. So, if the home improvement makes your home more valuable, that added value isn’t deductible, only the extra cost that goes toward medical care counts.

You must subtract the increase in your home value from the cost of the upgrade on your tax form. For example, if you added an elevator for medical purposes and it costs $50,000 and adds $10,000 to your home’s value, then only $40,000 may be deductible. If you add that same elevator as a luxury item and not for medical use, it wouldn’t be deductible in the year you added it, but it would add to your home’s cost basis, potentially reducing capital gains taxes when you sell your property.

Eligible Energy-Efficient Upgrades

While there used to be federal tax credits for certain energy-efficient upgrades, those credits have expired on any improvements installed after Dec. 31, 2025. If you installed eligible upgrades between Jan. 1, 2023, and the end of 2025, you could receive a credit of up to 30% of the cost.

Qualified expenses included:

Rental Property Repairs

If you use a portion of your home as a rental property, you may be able to deduct the cost of repairs that keep it in working order (fixing a leaky faucet, patching a roof), as a business expense. Remember, repairs and maintenance keep the property in its current condition.

Improvements that add value, on the other hand, are not eligible for an immediate tax deduction. Instead, you can report the cost of improvements as depreciation on your tax return. The IRS allows these costs to be depreciated over the course of 27.5 years. So, if you rent out half of your home and install a new kitchen in your rental that costs $20,000, you can depreciate 50% of the $20,000 over the course of 27.5 years – a $10,000 depreciation resulting in a deduction of $364 a year for 27.5 years.

Improvement-Related Home Equity Financing Interest

You may be eligible for a tax deduction if you use a home equity loan, HELOC or cash-out refinance for a home improvement project. But you can’t deduct the cost of the improvement itself. Instead, you can deduct the interest paid on the loan in that year.

In order to qualify, the funds must be used to substantially improve the property. Improvements must also be made to the property securing the loan. You can’t take out a home equity loan on your primary residence, upgrade your vacation home kitchen and then deduct the interest.

Historic Rehabilitation Projects

You may qualify for a tax credit (not deduction) for certain historic home restorations, but the property must be used for business purposes. Owner-occupied properties do not qualify.

The credit can total 20% of project costs, but there are many factors considered for qualification. The property must meet eligibility requirements from the National Park Service. Along with having a certified or listed historic building, the improvements must meet the “substantial rehabilitation test,” a standard that essentially determines whether your project is big enough to qualify for the credit. The test determines if qualified rehabilitation expenses (QREs) are greater than the building’s value over a period of 24 months (or 60 months if you’re doing work in phases). If your historic building is valued at $200,000 but your upgrades total $150,000, it’s not going to be deemed substantial enough to qualify for the credit.”

How To Claim Home Improvement Tax Deductions

Home improvement tax deductions should be included in your tax return for the year in which the project was completed. For instance, an eligible expense in 2026 would be filed in your 2026 federal tax return by April 2027.

How you claim your deduction depends on eligibility. Home office improvements, for instance, would be listed on your Schedule C if you’re a sole proprietor. Rental property expenses are listed on Schedule E.

Personal deductions, such as the interest on a home equity loan, can be used only if you itemize your deductions. That means all of your potential deductions (even beyond home improvements) should exceed the standard deduction for the year, or it’s not worth it.

Whatever deductions you take, remember to retain detailed records of your expenses in case you’re audited in the future.

FAQ

The Bottom Line: Understand How To Accurately Deduct Eligible Home Improvements

Home improvements can help maintain – or increase – your home’s value. Occasionally, the cost of home upgrades may be tax deductible in the year you incur the expenses. Other times, improvements may increase your home’s cost basis, potentially lowering capital gains taxes when you sell. Whether you’re preparing for this year’s tax season or aiming to reduce tax burdens down the road, it’s smart to stay on top of the IRS’ rules on potential tax breaks.

Ready to tackle a home improvement project? Find out how your home equity could help.

Lauren Ward

Lauren Ward is a writer with over a decade of experience covering financial topics for businesses and publications. Her work has also been featured in major publications such as U.S. News and World Report, CNN, Business Insider, The New York Post and Bankrate. Her expertise includes real estate, mortgages, small business, insurance and more.

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