Tax season is knocking on the door. We know that preparing your taxes at times can be quite confusing, especially if you have had a major kitchen remodeling that year.
There are rules to figure out if kitchen remodeling tax-deductible or not. We have pulled together a few pointers to help you start in order to approach your taxes and identify if you can claim a kitchen remodel on your taxes.
Is Your Kitchen Remodeling Tax Deductible?
Several types of home improvement projects, including kitchen remodeling, can be eligible for a tax write-off. However, it ultimately comes down to what kind of remodel you are completing and whether it is classified as a repair or an improvement.
Repairs are typically not tax-deductible. Hence, if you have to fix a significant part of your kitchen, like plumbing for a leaking sink, it cannot be deducted. In contrast, a remodeling project may be tax-deductible.
Repair vs Home Improvement
According to the IRS, a repair is usually a modification that restores a home to its original state or value. Further, home repairs are not tax-deductible, except in the case of home offices and rental properties that you own. Home repairs involve replacing broken window panes, fixing a hole in the carpet, fixing a leaking faucet, or replacing a few broken roof shingles.
On the other hand, a home improvement is any modification that increases the value of your home. Examples of home improvements include adding a new roof, a new driveway, insulation in the attic, a new septic system, or built-in appliances. Furthermore, improvements are tax-deductible; still, some are only deductible in the year the house is sold.
For example, if you made a home improvement in 2013 and sold your house in 2020, any deductions that you are eligible for would be recognized on your 2020 tax return.
Nevertheless, even if you are not planning to sell your house in the year, it is important to completely document any tax-deductible home improvements you make along the way. This way, you can make the most of your upgrades when the time comes. Moreover, if you are unsure whether a pair or improvement is tax-deductible, contact a local tax agency near you that can answer your questions regarding filing.
Home Improvements That Are Tax-Deductible
Homeowners can claim a tax credit for 10 percent of the cost for qualified energy-efficient improvements, along with the amount of the energy-related property expenditures paid or incurred during the taxable year.
Putting solar energy systems on new or existing houses can result in a 30 percent credit of the total cost of installation. Moreover, this credit is not limited to your primary residence and is even available for a newly constructed home as well.
Keep in mind that you can credit most eligible home improvements for energy efficiency but not deducted within the same year.
Home improvements with a tax credit:
- Installing solar panels
- Purchasing new solar water heaters for your kitchen or bathroom
- Replacing exterior doors or windows that meet Energy Star Program requirements
For Medical Care
Tax deductions for home improvements that are related to medical care can be difficult to come by. However, if you plan on aging in place, these deductions may apply to you completely.
You can include expenses for medical equipment installed in your house. However, only if its main purpose is to provide care for you or any family member.
The following list of home improvements are fully tax-deductible expenses, as these projects don’t increase home resale value:
- Building entrance and exit ramps
- Widening doorways and hallways
- Lowering kitchen cabinets
- Adding lifts from one floor to the other
- Installing support bars in the bathroom
The two basic requirements that qualify for a tax deduction in-home office. Improvements that are regular, independent use and that your home is the primary place of your business.
In recent years, there have been some of the most prominent tax law changes in home office renovations. As a result, tax deductions are no longer available to employees who maintain a working space apart from their employer’s office.
However, you can deduct home office renovations if you are working from home for your business. The good news is that if you are eligible for this tax break, both repairs and improvements can be eligible, only if they are implemented in the parts of your home used for business.
Home office improvements are deductible over time but with depreciation. Further, repairs are deductible within the tax year they are completed since they are considered necessary for the upkeep of your business.
Home office improvements with a tax deduction:
- Repairs/improvements made directly to your office space
- Repairs made to distinct parts of your home (partially deductible)
- Some improvements made to distinct parts of the home (partially deductible)
Rental Property Renovations
With rental properties, the rules on repairs and improvements can get a little confusing. Repairs are tax-deductible because they are necessary for the maintenance of a property.
Rental repairs can be deducted within the year they are completed, similar to home offices. Moreover, improvements like kitchen or bathroom remodel, and replacing appliances, add value to your rental property and consequently depreciate over time.
Rental home improvements with a tax deduction:
- Any upkeep essential to maintain a comfortable space for your tenants
- Addition of rooms or upgrades to the property (deductible over time, with depreciation)
Home Improvements For Resale Value
Prominent home improvements or capital improvements increase the value of your home. Capital improvements need to last for more than one year and add value to the base cost of your home, increase its life or at least adapt it to new uses.
Just like the kitchen remodeling tax-deductible clause, you can add these to your tax break when the time to upgrade your house comes. Therefore, it is crucial to itemize receipts and keep track of kitchen remodel costs, including labor costs.
Resale-focused home improvements with a tax deduction:
- Finishing a basement
- Finishing an attic
- Creating a new bathroom or a new kitchen
- Installing a new furnace
- Adding a new swimming pool