Are Home Renovations Tax Deductible In Pennsylvania?

A home is a significant investment and a place where we spend the majority of our time. So naturally, it is important that we keep updating it. That’s where home renovations come to the forefront. However, these can cost a lot! So when you're considering home renovations, one question that often comes to mind is whether these improvements will provide a return on investment. 

In fact, some roofs can even provide you with tax benefits. If you’re a homeowner in Pennsylvania, knowing which type of improvements provide tax benefits can help you make informed financial decisions. In this blog post, we’ll explain what you need to know about the return on investment in the form of tax deductibles and credits that you can receive from home renovation projects in Pennsylvania.

Understanding Tax Deductions

Before you learn what home improvements offer tax deductions, we first need to explain what a tax deduction is. Tax deductions reduce the amount of your income that is subject to federal income tax. However, not all expenses are tax-deductible, and home renovations often fall into a gray area.

Are All Home Renovations Tax-Deductible?

Generally, home renovations are not directly tax-deductible. The IRS does not allow deductions for personal expenses, which include most home improvements. This means that if you're renovating your kitchen, adding a new bathroom, or upgrading your windows, you can't deduct the cost of these projects from your federal taxes.

However, there are exceptions and ways in which renovations can still provide tax benefits. These benefits typically fall into three categories: energy-efficient home improvements, renovations for medical reasons, and improvements related to home offices or rental properties. We will talk more about them in the following sections. 

Tax Credits for Home Improvements

Tax credits are different from deductions. While deductions reduce your taxable income, tax credits reduce the amount of tax you have to pay for the year or provide you with a larger return. There are specific home improvements that may qualify for tax credits, particularly those related to energy efficiency. Let’s take a closer look at what certain home renovations can get you.

Energy-Efficient Home Improvements

The federal government offers tax credits for certain energy-efficient home improvements. These can include improvements both in and outside your home. For example, installing solar panels, and energy-efficient windows, doors, and insulation. If you make these improvements, you may be eligible for the tax credit from the IRS.  

For instance, if you install solar panels, you might qualify for a federal tax credit that covers a percentage of the cost. While this credit doesn't apply to all types of renovations, it can significantly reduce the cost of energy-efficient upgrades.

Currently, the IRS has set the limit at 30%, that is, you can get a tax credit of up to 30% of the total expense of the project.  

Here is a table that summarizes the tax credits that you are eligible for, based on the type of home improvements you perform: 

Home Improvement Type	Credit Limit
Energy-Efficient Home Improvements	Up to $1,200 in total per year
Exterior Doors	$250 per door (up to $500 per year)
Windows	$600 per year
Home Energy Audits	$150 per year
Heat Pumps	$2,000 per year

Home Office Deductions

If you use part of your home exclusively for business purposes, you may qualify for a home office deduction. This can include a portion of the costs related to home improvements. In order to qualify, however, there are certain criteria that your home needs to fulfill: 

• The home office must be your principal place of business or a place where you regularly meet with clients or customers. 
• Also, the space should only be used for work and not for personal stuff.

What Can You Deduct?

If you qualify, you can deduct a portion of your home expenses, including mortgage interest, property taxes, utilities, repairs, and depreciation. The percentage of your home used for business will determine the portion of these expenses that you can deduct. For instance, if your home office occupies 10% of your home’s square footage, you can deduct 10% of the qualifying expenses.

Medical Home Improvements:

In certain circumstances, home improvements made for medical reasons may be tax-deductible. These improvements must be directly related to a diagnosed medical condition and recommended by a healthcare professional. 

Examples include:

Installing Wheelchair Ramps or Elevators: If a member of your household has trouble getting about the home, the cost of installing wheelchair ramps or elevators may be deducted as a medical expense.

Adding Handrails or Grab Bars: The installation of handrails or grab bars in bathrooms or hallways to accommodate a medical condition could potentially qualify for a tax deduction.

Increasing Your Home’s Basis

Even though most home improvements are not immediately deductible, they can increase your home's basis. The basis is the amount you use to calculate your profit or loss when you sell the home. By increasing your basis, you can reduce the capital gains tax you might owe when you sell your home.

State-Specific Considerations in Pennsylvania

While the federal tax rules apply nationwide, Pennsylvania has its own state tax laws that can affect the tax implications of home renovations.

Property Tax Considerations

In Pennsylvania, home improvements that increase your property’s value may lead to higher property taxes. Counties and municipalities periodically reassess property values, and significant renovations can call for a reassessment. While this doesn’t directly impact your income taxes, it’s a financial consideration to keep in mind.

Local Incentives and Rebates

Some local governments in Pennsylvania offer incentives or rebates for specific types of home improvements, particularly those related to energy efficiency or historical preservation. For example, the City of Philadelphia has programs that provide grants or tax abatements for certain energy-efficient, or green building practices. Check with your local government to see if any such programs are available in your area.

Practical Tips for Homeowners

Keep Detailed Records: Always keep detailed records and receipts of all home improvements. This documentation is essential for accurately calculating your home’s basis or claiming deductions and credits.

Consult a Tax Professional: Tax laws can be complex and change frequently. It’s wise to consult with a tax professional to understand the specific tax implications of your home renovations.

Consider Energy-Efficient Upgrades: Energy-efficient home improvements can provide immediate tax benefits through federal tax credits. Additionally, they can lower your energy bills and increase your home’s value.

Understand Local Tax Impacts: Be aware of how your renovations might affect your property taxes. Contact your local tax assessor’s office if you have questions about how specific improvements will impact your property’s assessed value.

How Can Our Team Help You? 

If you are looking to improve your home’s exterior or interior and are searching for the best contractor around, look no further than our team! At McClellands Contracting and Roofing. We are your premier contractors for home renovation and improvement projects. 

What About Home Improvement Financing? 

Home improvements can be quite costly, and not all of them will get you tax credits or deductions. So, how do you finance these projects? There are several options available to help you manage the expenses of home renovations, and one of them is through financing options offered by local contractors. 

We are proud to offer the best home improvement financing options. Our team has partnered with Service Finance Company to not only allow us to assist you with your roofing projects, but your home renovations as well. To learn more about us, contact us at (412) 353-5660 today.