A Guide To Getting Tax Deductions for
Home Improvement Projects
Did you know that U.S. consumers carried out 148.5 million home improvement projects in 2021? Together, those activities resulted in total spending of $376.9 billion!
If you have plans to do the same this year, consider those you can write off. That's right: You can get a potential tax deduction for home improvement projects.
So, how exactly does an income tax write-off work for such activities? And most importantly, which projects qualify for these deductions?
We'll explain what you need to know below, so read on.
What Is a Tax Deduction for Home Improvement?
A tax deduction is a subtractable item from your taxable income. It lowers the total amount of taxes you'd otherwise owe the government.
You can get a deduction from your federal or state income taxes.
A home improvement, in turn, is any work that adds value to your home, such as additional rooms. It can also be a project designed to increase its useful life, such as a plumbing or electrical upgrade. Another is an energy efficiency-increasing addition, such as a solar energy system.
Most home improvement projects aren't tax deductible for federal income taxes. However, there are at least two cases wherein you might get a tax break. One involves energy efficiency, while the other has to do with medical purposes.
Which Energy Efficiency Upgrades Qualify?
You can get a tax credit if your home improvement project involves installing solar at home. Currently, the federal solar investment tax credit (ITC) is 26%.
That 26% dollar-for-dollar credit applies to a solar energy system put in service this 2022. For instance, suppose you spend $25,000 installing solar panels in your home. In that case, the total federal income tax credit you can get is $6,500.
You can then deduct that $6,500 from the taxes you'd otherwise owe the federal government.
Your state may also have a similar incentive, except that the credits apply to your state income tax. An example is New York, offering its residents a tax credit of up to 25% for solar equipment.
What About Medical-Related Improvements?
You can deduct certain expenses, provided they exceed 7.5% of your adjusted gross income. An example is installing equipment in your home designed to accommodate disabilities. As long as it doesn't increase your home's value, you may be able to get a deduction from it.
How Do You Claim Deductions and Credits?
You can claim the tax deductions and credits you qualify for when filing your tax return. If they're for your federal taxes, be sure to fill out the appropriate forms issued by the IRS. If they're for state taxes, go to your state's official website for help getting the documents.
Alternatively, you can hire a tax advisor authorized to prepare tax returns. However, only those with an IRS Preparer Tax Identification Number (PTIN) can do that. You can also check this guide to learn how to choose a tax advisor.
Save With Tax Deductions and Credits
As you can see, there are only a few instances wherein you can get a tax deduction for home improvement projects. That includes energy-efficiency upgrades (i.e., solar installation) and medical equipment installation.
So if you want to improve your home and get a tax break, then those two are your primary options.
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