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Home Tax Deductions, Expenses

Home Tax
Deductions

For the given tax year, the easiest and most accurate way to determine if any of your home expenses are tax deductible is to start a free tax return on eFile.com or use the 2021 Tax Calculator.

For planning purposes, review the home-related expenses you can or cannot claim on your 2021 Tax Return if you itemize your deductions below. In the adjusted home cost basis section, you will see how you could get an indirect tax deduction when you sell your home, not in the year the improvement expense occurred.

Are Home Improvements Tax Deductible?

There are many expenses made to upkeep, improve, or modify a home. In general, if these expenses are essential home repairs, such as fixing a leak, they are not deductible for the tax year they are made. Some home improvements or expenses may be tax deductible, whether in the current tax year or when the home is sold; we have organized the table below to give an overview of this. When you prepare your return on eFile.com, you will not have to worry about these when providing your tax figures. We will help report and calculate any deductions you may be qualified for based on your property information.

However, it may be helpful to know the below information if you are planning to put some money into your property. For example, you may be interested in installing solar panels and wondering if they are tax deductible. Should you invest in energy efficient property so you can write it off on your tax return? Read more below.

Home Expense
Can you Claim it?
Fire, flood, or homeowner insurance payments
No
Amounts paid to reduce your mortgage principal
No
General home improvements, repairs, maintenance expenses
No, however, see more information about this below
No, but there are tax credits
No, but there are tax credits
No, unless you are a self-employed business owner

Price or Basis Cost Change of your Home

A home improvement that increases your home basis cost can be considered an indirect tax deduction. Even though you might not be able to enjoy a write-off or tax deduction for the tax year the expense for a home improvement occurred, the following factor should be considered. Regardless of whether you purchased or constructed your home, the cost (including settlement, closing costs) of that home is consider the basis cost: the actual amount you paid for it, including any debt you assume.

  • If you owned and lived in the home for two of the five years before you sold it and your filing status is single, then up to $250,000 of the profit is tax-free; in other words, there is no capital gains tax. If you are married and file a joint return, the tax-free amount doubles to $500,000. You can exclude this amount from your taxable income. You cannot exclude the income if you already excluded income from another home sale in the 2 years before the sale of this home.

While you own your home, improvements, updates, etc. may take place that could change the original basis of your home. These improvements can either increase or decrease your original basis and, as a result, you will have an adjusted basis.

Exception - Improvement versus Repair: A home repair (painting, gutter or floor repairs, repairing leaks, replacing existing or broken windows, doors, walls, etc.) keeps a home or maintains it in the original operating condition, thus they do not add to the value of your home. As a result, you can not add them to the basis cost of your home. On the other hand, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements and can be added to the basis cost of the home. Learn more here about homeowners and taxes.

If you have more questions about this, contact one of the eFile.com Taxperts.

Adjusted Cost Basis

Find more details about the above-mentioned adjusted cost basis. This table will outline the various expenses which may increase the value of your home. These are worth noting and considering as a homeowner who is looking to sell and make a profit in the future. Home improvements generally add value to the property and will pay off when selling the property. The items below are not all inclusive, but give a general idea as to what investments may increase the cost basis of the property.

Home Cost Basis Increases
Additions
Bathroom, bedroom, deck, garage, porch, patio, storage, fireplace
Heating & Air
Heating system, central air conditioning, furnace, duct work, central humidifier, filtration system
Lighting
Wiring upgrades, lighting fixtures
Plumbing
Water heater, soft water system, filtration system
Insulation
Attic, walls, floors, pipes and duct work
Lawn & Garden
Landscaping, walkway, driveway, fences, retaining wall, sprinkler system, exterior lighting, swimming pool
Interior Improvements
Built-in appliances, kitchen or bathroom modernization, flooring, wall-to-wall carpeting
Communication, Security
Satellite dish, intercom, security system, home network
Miscellaneous Improvements
Property damage repair, storm windows and doors, roof, central vacuum
Home Cost Basis Decreases
Insurance
Insurance or other reimbursement for casualty losses; deductible casualty loss not covered by insurance.
Depreciation
Depreciation allowed or allowable if home is used for business or rental purposes.
Subsidy
Value of subsidy for energy conservation measure excluded from income

Keeping Records of Home Improvement Expenses

Use this home improvement chart to keep track of your improvement expenses during the time you own the home up until you sell the home. Until the sale of your home, you can not deduct these expenses on your annual tax returns. Upon selling, having record of all of these expenses will prove to be highly beneficial and makes the sale and reporting it on your tax return easier.

Home Improvement Expense Chart

In summary, any home improvement costs can add up over the years, so it is important you keep records for each year just in case. If you deducted the sales taxes on the construction or purchase price of your home as an itemized deduction on Schedule A, you can't include these sales taxes as part of your cost basis in the home.

Other Tax Breaks

See how to save money around the house as well as tax deductions and tax credits you may qualify to claim on your tax return.

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