Are Home Improvements Tax Deductible? Guide to Tax Benefits
The past year has been financially turbulent for homeowners. In 2024, rising inflation and interest rates continued to put pressure on household budgets, while extreme weather events drove up disaster preparation costs and repair expenses.
Despite these challenges, homeowners remain resilient and are determined to maintain and improve their homes. This trend is reflected in our recent Housepower Report, which found DIY projects are surging in response to rising costs. Over one-half (55%) of homeowners indicate they’ll tackle more DIY projects in 2025.
To further offset these expenses and bring their visions to life, homeowners can leverage the tax benefits available for certain home improvements. The specific types of benefits and their applicability, however, vary depending on the project and the state.
We’ll go over examples of potential qualifying home upgrades below, including some you can DIY. Consult with a tax professional with questions regarding tax laws, upcoming changes, how tax benefits work, and professional advice regarding what projects may or may not qualify.
2025 update: What to know before you file
Recent executive orders from the Trump administration have introduced uncertainty around the tax benefits available to homeowners considering clean energy or energy-efficient upgrades.
While funding for certain federal programs under the Inflation Reduction Act (IRA) has been paused, current tax incentives remain in place for now. Homeowners who made eligible upgrades in 2024 should still get those tax benefits.
Tax season is already shaping up to be more complicated than usual. The Internal Revenue Service (IRS) recently announced staffing cuts, with 6,000 employees being laid off during the busy tax season. This downsizing effort could slow down tax processing and create additional hurdles for homeowners seeking deductions or credits.
Homeowners considering clean energy or energy-efficient upgrades in 2025 should stay informed about potential policy changes and take advantage of existing tax credits.
While energy-related tax incentives are uncertain, other home upgrades—particularly capital improvements—remain firm in their financial advantages.
Capital improvements vs. repairs
The Internal Revenue Service (IRS) allows homeowners to take a tax deduction for certain home improvements classified as capital improvements. To apply for the deduction, the improvements must meet three key requirements:
- Extend the home’s lifespan.
- Add to the home’s uses.
- Increase the home’s value.
These differ from home repairs, which help maintain your home but don’t necessarily add value (like fixing a leak).
There are some limitations to the types of improvements you can include as a capital improvement. For example, you cannot include the cost of installing carpeting if you later removed it. You also cannot include energy-related improvements if you received subsidies or tax credits for those improvements.
Once you determine if your home improvement qualifies as a capital improvement, you can add the value of those upgrades to your home’s cost basis. The cost basis of your home refers to the home’s original purchase price. Adjusted cost basis accounts for changes over time, including the cost of capital improvements minus any depreciation or deductions taken.
When selling your home, subtracting your adjusted cost basis from the sale price can potentially lower your capital gains taxes. However, it's also important to consider the tax implications of capital gains resulting from the sale.
We recommend consulting a tax professional to help understand what improvements may qualify and the tax implications of capital improvements and capital gains on the sale of your home.
Although you won’t see tax benefits from these improvements immediately, these projects can help protect your home by getting ahead of potential issues. Learn more about how you can benefit by reading IRS Publication 523 and Topic No. 701 for the latest information and examples of capital improvements.
Capital improvement examples:
- Installing a new HVAC system to replace one that isn’t running efficiently or is beyond repair can help you save money, protect your home, and even offer potential tax benefits. A modern and efficient HVAC system can improve air circulation, maintain temperature control, and help you cut down on utility costs in the process. Plus, if it qualifies for energy efficiency tax credits or adds to your home's cost basis, it could reduce your tax burden when you sell.
- Attic insulation installation can cost about $1.80 per square foot and can help reduce heating and cooling costs, easing stress on your HVAC system. A better-insulated attic can also help maintain your roof’s temperature and prevent related damage, like the expanding and contracting that can occur with winter ice dams. Certain insulation upgrades may also qualify for energy efficiency tax credits, providing potential savings come tax season.
- Installing water softeners can help reduce calcium and magnesium in your water. This helps reduce buildup in plumbing fixtures and pipes and helps appliances run more efficiently and last longer. In addition to these long-term savings, water softeners may qualify for energy efficiency tax credits.
Energy-efficient upgrades
Homeowners can potentially qualify for a tax credit of up to $3,200 for energy-efficient improvements made after Jan. 1, 2023. The credit for 2025 is 30% of qualified expenses but has certain limits for different types of improvements.
Energy-efficient upgrades can help reduce energy usage, strain on your critical systems, and utility costs while also helping protect your home year-round. Upgrades can include structural improvements to your home and the installation of new systems.
We encourage you to learn more to see how you can benefit. For the latest information, start by reading the IRS Energy Efficiency Home Improvement Credit guidance.
Example of energy-efficient upgrades:
- You can get a home energy audit from a professional home energy auditor for a tax credit of up to $150. An auditor will help you understand where you’re losing energy and identify health and safety issues in your home. According to the U.S. Department of Energy (DOE), a home energy audit could help you save up to 30% on your energy bill. To qualify for this credit, the audit must be conducted by a qualified home energy auditor or by one who is supervised by a qualified auditor. It must also include a written report prepared and signed by a qualified home energy auditor, and the report must be consistent with industry best practices. Find more information in Notice 2023-59.
- You can install ENERGY STAR’s Most Efficient exterior windows and skylights for a credit of up to $600 based upon eligibility. Similarly, replacing your exterior doors with ENERGY STAR-certified models could earn a tax credit of up to $500. Replacing windows and doors can help improve insulation and reduce the need to run your HVAC.
- You can install biomass stoves that meet Energy Star’s requirements for up to a $2,000 credit. Biomass stoves must have a thermal efficiency rating of at least 75% to qualify, and costs may include the installation cost. Biomass can include wood pellets and grasses. Although burning biomass can reduce energy usage, we recommend following wood-burning best practices to help reduce fire and other health risks.
Clean energy upgrades
You can potentially qualify for the residential clean energy credit if you install new renewable energy properties in your home, such as solar panels or geothermal heat pumps. This tax credit has no limit on how much you can claim, except for fuel cell properties.
Fuel cells use their fuel source (usually hydrogen) to react with oxygen and generate electricity. These systems are often used as backup power sources. While eligible for tax credits, there's a limit based on how much power the fuel cell can produce. That limit is $500 for every half kilowatt of power.
If multiple people live in the same house and claim this credit for the same fuel cell, their combined credit can't be more than $1,667 for every half kilowatt of fuel cell capacity.
Using the clean energy you generate can help lower your reliance on traditional utilities and lower usage and bills. Systems like solar panels are generally easy to maintain, typically only requiring regular cleaning to prevent debris buildup.
We encourage you to learn more to see how you can benefit. You can start by reading the IRS guidance on the Residential Clean Energy Credit.
Example of clean energy upgrades:
- Installing a solar water heater can help reduce strain on your traditional water heater and help prolong its life, depending on the type you install. For example, in a two-tank system, the solar water heater stores and preheats water before sending it to your conventional water heater, reducing the energy needed to reach the desired temperature. This setup is typically installed in a garage or basement. Since water heating is often the second-largest energy expense in a home, switching to a solar-assisted system can lead to significant savings—and may also qualify for federal tax credits.
- Installing geothermal heat pumps can help heat and cool your home more efficiently than traditional heating and cooling systems by transferring heat to the ground rather than generating heat. They tend to be expensive, but according to the DOE, you can potentially see a return on investment (ROI) in five to 10 years, depending on available financial incentives.
- Battery storage technology helps store excess energy generated from clean energy sources. This gives your home a reliable energy source if the grid goes down during a blackout or extreme weather event. In addition to enhancing energy independence, certain battery storage systems may qualify for federal tax credits, offering potential savings while making your home more resilient.
Casualty, disaster, and theft losses
In recent years, homeowners across the U.S. have faced an alarming rise in severe weather and climate disasters, with damages reaching billions of dollars. According to the National Centers for Environmental Information (NCEI), these events are becoming more frequent and damaging, leaving many families to navigate the challenges of recovery and rebuilding.
While homeowners insurance is the first line of defense, it may not cover all costs. The IRS allows you to potentially deduct losses resulting from disasters (events declared by the President as a disaster), casualties (sudden, unexpected, or unusual events like fires, storms, or vandalism), and theft. If you’ve experienced one of these losses, you could qualify for tax benefits under IRS Publication 547.
Determining the amount of your financial loss can be complex. You generally need to calculate the decrease in your property's fair market value due to the casualty, disaster, or theft. There are two primary ways to do this:
- Appraisal: A professional appraisal from a qualified appraiser is often the best way to determine the decrease in fair market value.
- Cost of repairs: If certain conditions are met, you may be able to use the cost of repairs as evidence of the decrease in fair market value. These conditions typically include that the repairs are necessary to restore the property to its condition before the event, that they are actually made, and that the cost is reasonable.
Consult with a tax professional to determine if your losses qualify and how to properly calculate and claim them. They can help you navigate the complexities of Publication 547, which provides detailed guidance on these losses and potential deductions.
Examples that may qualify:
- Damage to your home from a fire (not caused by arson) is a classic example. This could include structural damage and improvements like flooring, cabinetry, or built-in appliances. The loss would be the decrease in fair market value due to the fire or the cost of repairs.
- Wind, hail, or falling trees can cause significant damage to roofs, siding, windows, and landscaping. If your home is in an area prone to such events, and you've made improvements to protect against them (like impact-resistant windows), damage to those improvements could also be considered.
- If your home is damaged in an event that the President declares a disaster (like a hurricane, flood, or severe storm), the losses are treated somewhat differently than other casualties. The IRS provides specific guidance for these events, and state-declared disasters have their own tax implications.
Historic home upgrades
You can potentially qualify for the Federal Historic Rehabilitation Tax Credit if you are renovating a historic home.
Historic homes can qualify for this tax credit and other grants since many organizations wish to preserve historical buildings. Taking advantage of these can help lower the financial burden of potential repairs while helping you maintain your home’s original beauty. However, we recommend consulting a tax professional and representatives from each respective organization to understand qualifying requirements.
We encourage you to learn more to see how you can benefit. You can start by reading the IRS’ guidance for qualifying for the Rehabilitation Credit, any restrictions and additional terms, and more detailed information from the National Park Service (NPS) about applying for historic preservation tax incentives.
Examples of historic home upgrades:
- Upgrading or replacing old pipes may qualify for this tax credit and may be necessary to bring the home up to code and help prevent water damage.
- Replacing deteriorated parts in the structure of your home, like posts or beams, may qualify for this credit. Replacement should be visually similar to the original and at least equal to the original’s load-bearing capabilities.
- Fully replacing a deteriorating set of stairs using the same or compatible substitute material can make your home safer and may qualify for this tax credit. The new set of stairs should look similar to the original.
Medically necessary upgrades
You can potentially include medically necessary home upgrades as a part of your medical expense deduction. These include improvements that help make your home more accommodating for a disability that you, your spouse, or dependents that live in your home have.
The amount you can include in your medical expense deduction depends on how the improvement impacts your home’s value:
- If the improvement increases your home’s value, your medical expense is considered the cost of the improvement minus the increase in home value.
- If your home’s value does not increase, you can include the entire cost in your medical expense deduction.
You can invest in upgrades that can help make your home more accessible and help prevent future maintenance issues (which is especially important if you plan to age in place). For example, lowering your kitchen cabinets or installing pull-down shelves can help prevent potential falls and damage when straining for out-of-reach items.
We encourage you to learn more to see how you can benefit. You can start by reading IRS Publication 502 for the latest information and examples of qualifying medically necessary home improvements, restrictions, and other terms.
Examples of medically necessary upgrades:
- Qualifying upgrades could include installing modified smoke detectors and other monitoring systems that can help alert those with disabilities, such as alarms with strobe lights for the hard of hearing.
- Grading, or leveling, the ground can improve accessibility and also help protect your home from water runoff. Grading can help reduce steep slopes and create more accessible pathways for those with mobility challenges. If done to accommodate a medical need, it may qualify as a medically necessary home improvement in the eyes of the IRS, potentially offering tax benefits.
- Bathroom modifications, like grab bars and railings, can help prevent slips and falls. When installed to meet a medical necessity, these upgrades may qualify for a tax deduction as a medical expense. Additionally, they can help contain water splashes, reducing the risk of mold or mildew over time.
Home office repairs and improvements
You may be able to deduct home office repair expenses if you have a dedicated part of your home that you regularly use as your main place of business, including repairs and maintenance. The amount you can deduct depends on whether the project impacts the entire home or just the office.
According to the IRS, to deduct expenses for business use of your home, you must use part of your home:
- Exclusively and regularly as your main place of business
- Exclusively and regularly as a place to meet with patients, clients, or customers
- In a separate building on your property (not attached to your home) for your business
- Regularly for storing inventory or product samples
- For rental purposes
- As a daycare facility
We encourage you to learn more to see how you can benefit. You can start by reading IRS Publication 587 for the latest information on potential tax benefits for home office repairs and improvements.
Examples of home office repairs and improvements:
- If you install a full home security system, you can potentially deduct the cost of maintaining and monitoring the system that relates to the business part of your home.
- Repairing damaged outlets and wiring may be tax deductible and, more importantly, a crucial project to help prevent electrical fires and potential damage to your devices. Call an electrician for a professional inspection if you suspect electrical issues in your home.
- You can replace your home office windows with dual or triple-pane windows to help improve insulation and reduce noise. In addition to the tax benefits you may enjoy when you sell your home, this improvement can help lower the need for cooling and heating and lower strain on your HVAC system.
Rental property repairs
If you rent out a part of your home, you may be able to deduct repair expenses from the amount of taxable rental income you receive. Limitations apply, such as if you’re renting a space in your current residence. We recommend consulting a tax professional to help you understand what you may qualify for and how that impacts your tax obligations.
Maintaining the parts of your home that you rent can help prevent issues from impacting the rest of your home. For example, issues like water leaks or drafts in one area can lead to bigger issues if left unaddressed.
We encourage you to learn more to see how you can benefit. For more information on tax benefits related to rental properties, start by reading Topic No. 414, Topic No. 415, and Publication 527 from the IRS.
Examples of rental property repairs:
- Repairing leaks in a tenant’s bathroom is essential for preventing long-term mold and mildew issues, and it may also qualify as a deductible repair expense for rental property owners. Since leaks can lead to structural damage if left unaddressed, fixing them promptly also helps maintain the integrity of your home.
- Addressing air leaks in your tenant’s area can help improve insulation, keep them comfortable, and lower heating and cooling costs. Simple updates like replacing weatherstripping around windows and doors may qualify as deductible rental property repairs under IRS guidelines.
- Routinely checking the air vent(s) in your tenant’s part of the home can improve your chances of catching airflow issues early, including dirty vents or leaky ducts. Since vent maintenance and minor repairs generally fall under routine property upkeep, these costs may be tax-deductible for rental property owners.
4 tips to upgrade your home with potential tax benefits
Now that you have an idea of what types of projects can qualify for tax benefits, use these steps to help decide what projects you should prioritize.
Step 1: Identify each project’s potential tax benefits
Learn more about tax law in your state and what tax credits your projects are eligible for. Familiarize yourself with the eligibility requirements for current tax breaks to ensure projects meet the requirements. This can include requirements for documentation and project completion dates.
Step 2: List out considerations for each potential project
Once you’ve narrowed down projects that can have tax benefits, you can start listing out other considerations for each project. Considerations can include:
- Impact on home property value and ROI
- Potential to proactively protect the home from future risks
- Estimated cost savings for utilities and repairs, if applicable
- Tax benefits and when you can enjoy those benefits
- Necessity for a professional and related labor cost
- Total cost and available financing options
Step 3: Prioritize projects based on key considerations
Review your list against your homeownership goals for the next few years. Decide which projects will most impact your home and which you can temporarily pause.
Step 4: Keep track of project expenses and supplies
Keep a log of what you’ve spent for each project, along with receipts, to have on hand when filing your taxes. Keep both digital and physical copies so information is easily accessible during tax season.
Prioritizing home improvements with tax benefits can help lessen your financial burden. Plus, certain home improvements can help make your home more comfortable and improve its value, all while proactively protecting your home.
Tackling home improvements can mean managing many moving parts while trying to problem-solve issues on the fly. Download the free Hippo Home app to help you proactively maintain and protect your home with personalized to-do lists and customizable reminders.
Download the homeowner's guide to tax-deductible improvements
Planning home improvements? Smart renovations can enhance your living space and lead to tax savings. Download the guide below to help make your home improvements work for you at tax time.
Before you begin any of these projects, remember to consult with a qualified tax professional to confirm project eligibility and ensure you maximize your potential tax benefits.
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