Tax relief through deductions and credits would seem logical given the high cost of repairs or improvements to your primary residence. The reality is that neither home improvements nor home repairs are deductible. Stand-alone repair costs are not deductible, but repair costs as part of larger home improvement costs can be included in the cost basis calculation.
A home repair is a fixing or upgrading of a specific item or items in your home. These are done to maintain the property or to decorate to your specific taste. Examples on the exterior are repainting, deck and patio repairs, replacing gutters and downspouts, fixing steps and porches. Examples on the interior are floor repairs and installations, ceiling repairs, carpeting, and woodwork installation or staining and painting. Although these can be costly, neither tax deduction nor credit is available for such items.
Home improvements add market value to your property, so think in terms of what a future potential buyer would value. Fixing a leak in the roof will not add value, replacing the entire roof will. Adding two additional windows to a room to gain more light will not add value, building a sun room addition will. Home improvements do have a cost basis impact to your property, but direct tax deduction or credit is not available.
Property cost basis can be a bit confusing. The first factor is what you paid for the property and how much you have spent on major improvements. Repairs do not count. At time of sale, the price is considered a total gain for you, but you can deduct the price paid amount and the improvement costs from this gain. The gain is called a "capital gain," so the more you can deduct from the total gain, the less tax you will pay on the remaining gain. This is the only tax benefit available relative to home repair or home improvement, except certain energy items.
Some tax credits are available that are linked to specific energy-saving improvements, and there are certain qualifying requirements. Tax credits at 30 percent of cost to a maximum of $1,500 applies to windows, doors, HVAC, insulation, roofs and water heaters. More expensive items, such as solar panels, heat pumps, wind systems and fuel cells, also have a 30 percent tax credit without a maximum cost limit.
There is a major difference to remember when calculating tax impacts. A tax deduction reduces the amount of taxable income. A tax credit is a direct reduction of the taxes owed. As of 2009, there was no tax deduction allowed on home repair costs. The possibility of either being included in future tax reform is unlikely given current public dialog about possibly eliminating mortgage interest deductions for certain groups of taxpayers.