Tax-Deductible Home Improvement Projects by Soumi Sarkar
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While the costs of a renovation project can add up quickly, home improvements can ultimately save you money in the long term. Beyond increasing your home’s value, preventing potential damage, and reducing utility bills, certain upgrades can also provide tax benefits. Understanding which projects qualify for tax deductions can be complex, so we sought advice from tax experts.
Mark Steber, chief tax officer at Jackson Hewitt, emphasizes that while the goal shouldn’t be to renovate solely for tax breaks, there are strategies that can help you save on taxes. To determine eligibility for deductions, breaks, or credits related to home improvements, it’s advisable to consult a qualified accountant or tax professional. Steber offers insights into qualifying home improvements for the current tax year.
What Home Improvements Can You Deduct in 2025?
Homeowners could be eligible for an Energy Efficiency Home Improvement Credit of up to $3,200 for energy-efficient upgrades completed after January 1, 2023. This credit covers 30% of qualifying expenses, with specific limits for different types of improvements. Here’s a breakdown of eligible categories: energy-efficient, clean energy, historic home, and medically necessary upgrades.
Energy-Efficient Home Improvements
1. Replacing Windows: Upgrading old windows and skylights can enhance energy efficiency and reduce HVAC system usage. Eligible replacements can qualify for a credit of up to $600, provided the equipment aligns with ENERGY STAR Most Efficient criteria.
2. Biomass Stoves: These stoves utilize biomass fuel for heating purposes and need to meet specific requirements to qualify for a credit of up to $2,000. Installation costs may include labor.
3. Central Air Conditioners: Energy-efficient central air conditioners meeting EPA guidelines can qualify for a credit of up to $600 per item. Additionally, costs for electrical components supporting residential energy property could be eligible if they meet certain criteria.
4. Home Audits: A home energy audit for your primary residence could qualify for a tax credit of $150 if specific criteria are met. Documentation is essential for claiming this credit.
For more information on tax-deductible home improvements in 2025, consult a tax professional or visit the IRS website.
A home energy audit should be conducted to identify significant and cost-effective energy efficiency improvements for the home. This audit must be carried out by a qualified home energy auditor, or under their supervision if conducted by someone else. The resulting report should be prepared and signed by the home energy auditor, following industry best practices. The report must include the auditor’s name, relevant employer identification number (EIN) or other identifying number if applicable, an attestation of certification by a recognized program, and the name of that program.
Important Update for Claiming Energy Efficient Home Improvement Credit in 2025:
Manufacturers are now required to establish a PIN number for each eligible product for tax credit claims. Manufacturers are in the process of becoming “qualified manufacturers” (QMs). Taxpayers can include the manufacturer’s four-digit QM code on their 2025 tax return for various products such as heat pumps, water heaters, CAC, boilers, furnaces, biomass stoves, windows, doors, and skylights.
Clean Energy Home Improvements:
Homeowners can qualify for the Residential Clean Energy Credit by installing new renewable energy properties in their homes. This credit is 30% of the costs of new clean energy property installed between 2022 and 2032, reducing to 26% in 2033 and 22% in 2034. There is no dollar limit for most properties, except for fuel cell properties, which are capped at $500 per half kilowatt capacity.
Solar Panels:
Solar panels can lead to significant savings on energy bills, with an average annual savings of $1,500. By storing excess energy, homeowners may even be able to sell it back to the grid, further increasing their savings.
Solar Water Heater:
Swapping a traditional water heater for a solar-powered one can improve efficiency and reduce utility costs, particularly as water heating is often a significant expense.
Geothermal Heat Pumps:
Consider a geothermal system for more efficient heating and cooling of your home. Though expensive, with an average cost of $15,203, geothermal systems offer long-term energy savings and efficiency benefits based on location, unit size, and configuration.
According to Angi, the cost of various home upgrades such as battery storage technology can range from $4,541 to $26,610. The Department of Energy suggests that these investments could potentially yield a return on investment within five to 10 years, depending on financial incentives available.
Battery storage technology functions similarly to a generator system, storing excess energy from clean sources for future use, providing a reliable and sustainable energy source during power outages or inclement weather.
Older homes may be eligible for tax credits and grants to preserve historic elements, reducing the financial burden of repairs while maintaining the original beauty of the property. However, it is important to review any restrictions associated with these grants, as they may limit further alterations to the home.
Upgrading or replacing old pipes not only may qualify for tax credits but also helps bring the home up to code and prevent water damage, enhancing energy efficiency in older homes.
Restoring deteriorated historic elements like beams, railings, and posts can qualify for tax breaks if the repairs maintain the original style and load-bearing capacity of the home.
Replacing deteriorating stairs with compatible materials may improve safety and qualify for tax credits, provided the new stairs resemble the original design.
Medically necessary home upgrades, aimed at accommodating disabilities, may be included in the medical expense deduction. The value impact of these upgrades on the home determines the amount that can be deducted.
For individuals with disabilities, modifications like smart smoke detectors or smart home monitoring systems can enhance safety and potentially qualify for tax benefits.
Grading and leveling the ground can improve accessibility and protect the home from water runoff, involving measures such as creating ADA-compliant ramps and pathways.
Enhance your home environment by preventing standing water and making ADA-compliant modifications. Adding features like grab bars, handrails, and walk-in showers can increase accessibility and potentially qualify for tax credits.
Distinguishing between home improvement and home repair is important. According to IRS guidelines, improvements must add value, adapt to new uses, or extend the home’s lifespan. Combining repair tasks with improvements is acceptable, but not all repairs necessarily add value. Capital improvements focus on increasing home value and lifespan, distinguishing them from repairs.
Consider potential tax deductions for other renovation projects. For instance, home office repairs may be deductible if you have a designated workspace in your home for business purposes. Renovation expenses related to home offices may be tax deductible, but improvements are not. Examples include installing a security system or upgrading windows for better insulation.
If you rent out part of your home, repair expenses may be deductible from rental income. Addressing issues such as leaks, air leaks, and vent maintenance can enhance the rental space and potentially qualify for tax deductions.
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