Conflicting information posted on the Internet regarding the cost of home improvements that can be deducted from U.S. federal income tax returns confuses taxpayers. Data gathered directly from the authoritative source, specifically the Internal Revenue Service, reveals that certain home improvements can be deducted. However, each expense must meet strict guidelines to qualify. The qualifying deductions are related to improvements in areas used exclusively for business purposes.
Business Use of Residence
Exclusive use of a portion of your home for business purposes, whether or not you have an additional separate location where you conduct business, entitles you to claim certain expenses, including home improvements as deductions on federal taxes. For example, if you have one room dedicated to business use only, any improvements made to that area are generally tax deductible as a business expense is the area is used on a regular basis for business purposes.
Ordinary improvements on the portion of your home used exclusively for business purposes are tax deductible. The same goes for repairs. A general stipulation that covers business use of a residence is that the area for which expenses are deducted must be used exclusively for your business. In other words, doing business paperwork at the dining room table does not qualify, therefore sprucing up the dining room with a new paint job is not a tax-deductible home improvement. However, maintaining a home office that is your principal business office where you regularly perform duties for the benefit of your business and which is not used for personal family space, is considered a business use. Therefore, painting the home office would be considered a tax-deductible home improvement.
Partial costs of certain home improvements that add to the value of the entire residential property may qualify for a tax deduction if you dedicate a portion of your residence exclusively as your principal business location. For example, suppose 15 percent of the floor space in your home is used exclusively for business purposes. You install a new heating system that improves the total value of the home. Fifteen percent of the cost may be deductible as a business expense. Additionally, if you spend $5,000 upgrading the landscaping materials on the property, as much as $750 of the total cost of the improvement, or 15 percent, may be deductible as a business expense.
Home improvements that have no effect on federal tax liability include a multitude of items outside of the realm of business use of the home. For example, building a new patio on the back of the house or installing a swimming pool is not tax deductible, even though both may add significantly to the value of the home. Even if the area is used to entertain business clients, the home improvements do not qualify if the areas are also used at any time for personal leisure, neither do expenses incurred from such projects as redoing a bathroom or building an addition unless those areas are used exclusively for business purposes.