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Are home remodeling costs tax deductible?

July 6, 2021

What remodeling costs are tax deductible?

With the average costs of labor and materials for a bathroom remodel running up to $30k on average, you’re probably looking for ways to soften the blow through tax deductions. The good news is that there are quite a few home renovation tax credits you could qualify for.

Energy efficiency renovations

With growing support for eco-friendly upgrades and initiatives, your local and federal government have been offering various rebates and tax credits for qualifying home renovation projects. 

We’ve seen local city governments in the East Bay and South Bay, namely the city of Danville, San Ramon, Milpitas, and San Jose, offer rebates for purchasing electric water heaters, energy efficient HVAC systems, and higher R-value windows. 

To find out what your local city government offers, go to your city website and they should have a search bar there. Type “incentives”, “rebates”, “credits” and with a bit of scouring, you’ll find the credits there somewhere. Another way to find out what tax credits or rebates your local city government offers is to simply call their office and ask.

As for federal tax credits, the cost to purchase and install upgrades such as new roofing, windows, doors, HVAC, insulation, solar panels, and fuel cells may qualify for a home renovation tax credit. Make sure to keep your construction contract, receipts for materials, and ask your CPA to verify if your projects qualify for the tax credits.

Medical related renovations

There are a number of scenarios that will qualify your home renovation expense as a medical related expense. It is worth noting that you will only qualify for a tax credit if the expenses incurred are not covered by your health insurance, the expenses are paid for out of pocket and are over 7% of your yearly adjusted gross income. 

The most common scenarios include building a wheel-chair ramp, remodeling a bathroom, and installing stair-lifts. Read more about medical expense credits on the IRS website.

Mortgage interest payment deductions

You’ll only qualify for this if you used a home equity loan product to fund a substantial renovation of your home. The following projects qualify for a mortgage interest deduction:

  • Deck build
  • New roof
  • New HVAC
  • Building an ADU
  • Building an addition
  • New insulation

Assuming that these expenses are more than the standardized deductions, then you’ll want to itemize. Check with your CPA and see what they would suggest. Here are the standardized deductions:

  • $24,800 for married couples filing jointly.
  • $12,400 for single filers or married people filing separately.
  • $18,650 for head of household.

Other tax exemptions you might want to consider

If you’re planning to sell your home and have a substantial capital gain on the home, you may qualify for up to $250,000 of your capital gains as tax exempt; $500,000 if you’re married filing jointly. 

If you’re only learning this now and would like to adjust previous years filings to benefit from this, talk to your CPA. We’ve heard of cases where folks have been able to regain the money they’ve paid towards their capital gains tax.

If you’re just researching and looking to get started on financing a renovation project, contact our team and ask us about renovation financing. We work with Renofi who offer renovation financing of up to $500,000.

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