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Buying a home is among the most significant investments you can make during your lifetime. However, there are adjustments you’ll need to make to ensure your property looks great and continues to protect your family from harsh conditions outside.
But most home improvements do not come cheap. Because of this, it’s a good idea to look for home improvements that are tax deductible.
While most home renovations do not qualify for tax deductions, there are certain improvements that do. Here are some of these projects so you can decide which one is right for you.
Understanding Tax Deductions and Credits
Before diving into the specifics, it’s important to understand the difference between tax deductions and tBefore diving into the specifics, it’s important to understand the difference between tax deductions and tax credits:
- Tax deductions reduce your overall taxable income. This can decrease the amount of taxes you owe.
- Tax credits provide an exact dollar amount match reduction in your tax bill.
Home improvements typically fall under tax deductions, but some specific credits can apply as well.
Note that for the 2026 tax year, standard deductions are projected to be $32,000-$32,500 for joint filers and $16,000-$16,500 for single filers. You only benefit from itemizing home improvement deductions if your total expenses exceed these thresholds.
| Tax Benefit Type | How It Works | When You Benefit | Example Improvements |
|---|---|---|---|
| Tax Credits | Direct reduction of tax owed | Year improvement is made | Solar panels, heat pumps, energy-efficient windows |
| Tax Deductions | Reduces taxable income | Year improvement is made | Home office upgrades, medical modifications, rental property repairs |
| Increased Home Basis | Reduces capital gains tax | When you sell your home | Most permanent improvements: additions, renovations, new roof, HVAC systems |
Important Points To Know
The IRS states that you can get a tax credit of up to $3,200 for energy-efficient home improvements made after Jan. 1, 2023.
You can get a tax credit covering 30% of expenses for installing eligible new eco-friendly energy systems in your residence, applicable from 2022 to 2032.
Common Tax Deductible Home Improvement Projects
Here’s a breakdown of some tax deductible home improvements. In Pennsylvania specifically, 150,000-160,000 families recently claimed between $260-$270 million in credits for these improvements, demonstrating high local adoption. Of the federal credits claimed in Pennsylvania, $140-$150 million went toward clean energy systems (like solar), while $110-$120 million covered efficiency upgrades like windows and insulation.
Clean Energy Upgrades
Energy efficiency is good for the environment and can also benefit your taxes. To promote sustainability and make homes more energy efficient, the federal government offers tax incentives for these clean energy upgrades.
Solar Panels
Installing solar panels on your home is one of the most beneficial energy-efficient improvements you can make. Solar panels convert sunlight into electricity, which reduces your home’s reliance on traditional power sources and lowers your energy bills.
This qualifies for tax deductions under the IRS Residential Clean Energy Credit.
Besides this federal tax credit, many states offer additional incentives, rebates, and tax credits for solar panel installations.
Geothermal Heat Pumps
Geothermal heat pumps use the stable temperature within the earth to heat and cool your home, offering an efficient alternative to traditional HVAC systems.
Homeowners can claim a 30% federal tax credit for the installation of geothermal heat pumps. These systems are highly efficient, often reducing energy use by up to 50% compared to conventional heating and cooling systems.
Other Energy Efficient Upgrades
Installing renewable sources such as solar panels is not the only option. Here are some other improvements that are tax deductible.
Energy-Efficient Windows
Replacing old, drafty windows with energy-efficient models can help reduce heating and cooling costs by better insulating your home.
You can be eligible for tax credits of up to $600 if you install new windows that are Energy Star Most Efficient qualifying products.
These windows have improved insulation properties, reducing the amount of heat lost in the winter and keeping your home cooler in the summer.
Doors
Similar to windows, upgrading to energy-efficient doors can also improve your home’s insulation and reduce the energy consumption of your property. Plus, energy-efficient doors are often made from more durable materials, offering better longevity and security.
A federal tax credit of up to $500, or $250 per door, is available for the installation of qualifying Energy Star-rated doors.
Biomass Stoves
Biomass stoves are an environmentally friendly way to heat your home. They burn organic materials such as wood pellets, agricultural waste, and other biological matter to produce heat. These stoves are highly efficient and can significantly reduce your reliance on fossil fuels.
Though they are expensive to install, biomass stoves and boilers can qualify for a tax credit of up to $2,000 per year.
| Improvement Type | Tax Credit Amount | Annual Limit | Notes |
|---|---|---|---|
| Solar Panels & Geothermal | 30% of cost | No limit | Clean energy systems |
| Heat Pumps | 30% of cost | $2,000/year | Air source and mini-splits |
| Windows | 30% of cost | $600/year | Part of $1,200 total cap |
| Exterior Doors | 30% of cost | $500/door ($250 each) | Part of $1,200 total cap |
| Biomass Stoves | 30% of cost | $2,000/year | Must meet efficiency standards |
| Home Energy Audits | 30% of cost | $150/year | Part of $1,200 total cap |
| Other Efficiency Upgrades | 30% of cost | $1,200/year total | Includes insulation, HVAC |
Medical Deductions
Improvements made for medical reasons can often be deducted. These modifications must be primarily for medical care for you, your spouse, or your dependents. Some examples include:
- Installing ramps for wheelchair access
- Widening doorways to accommodate wheelchairs
- Modifying bathrooms to be handicap accessible
- Lowering kitchen cabinets for accessibility
- Adding handrails or grab bars in bathrooms
Key Points:
To qualify, these improvements must be necessary for medical care and not simply for improving the general quality of the home. Only the portion of the expense that exceeds the increase in your home’s value can be deducted.
Home Office Improvements
With the rise of remote work, home office deductions have become increasingly relevant. Many homeowners are concerned with whether or not they can get some tax benefits if they have a home office. Though home office improvements are generally not tax deductible, if you use part of your home exclusively for business, you might be able to deduct certain expenses. This includes:
- Renovations to the space used for your home office
- Painting, repairs, or maintenance specific to the office area
- Upgrades to office fixtures or equipment
Key Points:
- The space must be used regularly and exclusively for business purposes.
- The deductions are typically a portion of the total expenses, based on the percentage of your home used as an office. For example, if you paint your home and are using 20% of your home as office space, you can write off only 20% of the total cost.
Rental Property Improvements
If you own rental property, work done to that part of your property can often be deducted. Regular maintenance and repairs (not improvements) can typically be deducted in the same year they are incurred.
Key Points:
- To qualify for tax deductions, the maintenance or repairs must be necessary for the functionality of the property, not just for aesthetic improvement.
- Common deductions include the cost of professional repair services, materials, and general maintenance.
Leading Home Improvement Service Provider In Pittsburgh
By focusing on the home improvements we discussed in this blog post, you can potentially reduce your tax burden while enhancing your home’s value and functionality.
At McClellands Contracting and Roofing, we can take care of all your home improvement needs. We not only install energy-efficient doors and windows but also make sure your home stays protected from the elements with quality attic insulation and roofing services.
Contact us today at (412) 353-5660 to learn more about our home improvement services in Pittsburgh.
FAQs
A.To determine if you are eligible for a home energy audit tax credit, review the IRS guidelines for the Energy Efficient Home Improvement Credit. Ensure your audit is performed by a qualified professional and meets the specific energy efficiency criteria set by the IRS. Additionally, check for state or local incentives that might have separate eligibility requirements.
A.A home energy audit is an assessment that helps homeowners understand how energy is used in their homes and identifies opportunities for improving energy efficiency. Conducting a home energy audit can qualify for up to a $150 tax credit and may lead to significant cost savings and environmental benefits by reducing energy consumption and enhancing the overall comfort of your home.
Can I claim tax deductions for home improvements made in previous years that I forgot to report?
Generally, you cannot retroactively claim immediate tax credits or deductions for past years. However, improvements that increase your home's cost basis remain valuable—they reduce capital gains tax when you sell, regardless of when the work was completed. Keep all documentation, as these improvements add to your basis indefinitely.
What documentation do I need to keep for medical home modifications to satisfy IRS requirements?
You'll need a letter from a licensed physician stating the medical necessity of the modification, itemized receipts showing all expenses, and a before-and-after appraisal documenting any increase in home value. The IRS may also require proof that the person needing the modification is you, your spouse, or a dependent.
Do energy-efficient home improvements qualify for tax benefits if I'm installing them in a second home or vacation property?
Yes, the Residential Clean Energy Credit applies to second homes and vacation properties as long as you use them as a residence. However, rental properties have different rules—if you rent the property out, energy improvements may need to be depreciated rather than claimed as immediate credits.
How does refinancing or taking out a home equity loan affect my ability to deduct home improvement expenses?
The loan itself doesn't affect improvement deductions or credits, but interest on home equity loans is only deductible if the funds are used to substantially improve the home securing the loan. The improvements themselves qualify based on their nature (energy-efficient, medical, business use) regardless of financing method.
What happens to my energy tax credits if the improvement fails or needs replacement within a few years?
Once you've legitimately claimed a tax credit for a qualified improvement, you typically don't need to repay it if the system fails or requires replacement. However, if you remove the improvement shortly after installation without replacing it, the IRS may reconsider the credit as improper if it appears you didn't intend permanent installation.
