You Can Get Back $3,200 on Your Taxes for These Home Projects
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Whether you're a new homeowner who's knee-deep in a gut renovation or you're making necessary upgrades to your forever home, you might think that every home improvement is simply a sunk cost. Don't despair, though. Home improvements can greatly increase the value of your home in the long run (especially if you decide to sell). You can also get a much-needed tax break if your renovation projects qualify. Courtney Klosterman, home insights expert at the home insurance company Hippo, is here to walk us through the specifics.
"Despite a really rocky year for homeowners in terms of rising inflation, cost of living, and even repair costs, we're still seeing homeowners determined to maintain and improve their homes in 2024," Klosterman explains. "We learned in our recent homeowner regrets survey that nearly a quarter of responding homeowners were planning major renovations this year."
We recommend consulting a qualified accountant or tax professional to determine whether your home improvements and renovations qualify for a tax deduction, break, or credit. But to help you started and give you a sense of what you might save, we asked Klosterman to share her insights into qualifying home improvements this tax season.
What Home Improvements Are Tax Deductible in 2024?
Homeowners can potentially qualify for an Energy Efficiency Home Improvement Credit of up to $3,200 for energy-efficient improvements made after Jan. 1, 2023. The credit for 2024 covers 30 percent of qualifying expenses with limits for different types of improvements. Below, we break down what's eligible in the four included categories: energy efficient, clean energy, historic home, and medically necessary upgrades.
Energy-Efficient Home Improvements
Replacing Windows
Updating and replacing old windows and skylights can improve the efficiency of your home and reduce the frequency at which you run the HVAC system. You could qualify for a credit of up to $600 based upon eligibility. Klosterman notes that you have to use specific equipment that's included on the ENERGY STAR Most Efficient list.
Biomass Stoves
Biomass stoves aren't cooking stoves—they burn biomass fuel to heat a home or water. Biomass fuel includes agricultural crops and trees; wood, wood waste, and residues (including wood pellets); plants (including aquatic plants); grasses; residues; and fibers. They're similar to gas or electric fireplaces but better for the environment. Install a biomass stove that meets Energy Star's requirements and you can receive up to a $2,000 credit. To qualify, a biomass stove must have a thermal efficiency rating of at least 75 percent. Costs may include labor to install.
Clean Energy Home Improvements
You can potentially qualify for the Residential Clean Energy Credit if you install new renewable energy properties in your home. There is no dollar limit for this credit except for fuel cell properties (which are capped at $500 for each half kilowatt of capacity).
Solar Panels
With an average savings of $1,500 per year on energy bills (around $125 per month), solar panels can cut homeowners' costs drastically. With a standard electrical bill, you pay for the power you use. With solar panels, you store energy throughout the year, and if you don't use as much as you store there's energy left over. When that happens, depending on your area, you may be able to sell that unused energy back to your town's grid. That further increases the monetary savings households can achieve with solar power.
Solar Water Heater
Water heating is typically the largest utility expense in a home, and swapping your tank for a solar-powered water heater can not only improve your home's efficiency, but it can also lower your utility costs.
Geothermal Heat Pumps
If you're looking for a better way to heat and cool your home, consider a geothermal system. These pumps can help heat and cool your home more efficiently than traditional systems by transferring heat to the ground rather than generating heat. They do tend to be expensive, costing $15,026 on average, and depending on unit size, system configuration, site accessibility, and more, you may pay anywhere from $4,270 to $25,860, according to Angi. But according to the Department of Energy, you can potentially see ROI in five to 10 years, depending on available financial incentives.
Battery Storage Technology
Similar to a generator system, battery storage technology helps store excess energy from clean energy sources to be used at a later time. This gives your home a reliable (and sustainable) energy source when the grid goes down or you're facing a storm.
Historic Home Upgrades
Historic homes can qualify for this tax credit and other grants since many organizations wish to preserve historical buildings. "Taking advantage of these can help lower the financial burden of potential repairs while helping you maintain your home's original beauty," says Klosterman.
Replacing Old Pipes
Upgrading or replacing old pipes may qualify for this tax credit and may be necessary to bring the home up to code and help prevent water damage. This can also be a chance to improve an older home's energy efficiency.
Restoring Historic Elements
If your historic home features deteriorated finishings like beams, posts, stair railings, or other load-bearing elements that you plan on replacing, you may qualify for a tax break. The repairs must maintain the home's original style and era, and be at least equal to the original's load-bearing capabilities.
Replacing Stairs
Fully replacing a deteriorating set of stairs using the same or compatible substitute material can make your home safer and may qualify for this tax credit. The new set of stairs should look similar to the original.
Medically Necessary Upgrades
You can potentially include medically necessary home upgrades as a part of your medical expense deduction. These include improvements that help make your home more accommodating for a disability that you, your spouse, or dependents who live in your home may have. The amount you can include in your medical expense deduction depends on how the improvement impacts your home's value.
According to Klosterman, "if your home's value increases as a result of the improvement, your medical expense is considered the cost of the improvement minus the increase in home value," she explains. "However, if your home's value does not increase, you can include the entire cost in your medical expense deduction."
Modified Smoke Detectors
For those with disabilities—blindness or hard-of-hearing, changing out your smoke detectors for ones that flash lights or emit louder noises can qualify. Smart monitoring systems, like water leak detectors, can also make it easier to detect issues early in hard-to-reach areas.
Ground Grading and Leveling
Grading, or leveling, the ground can improve accessibility and also help protect your home from water runoff. This includes lessening steep hills, adding ADA ramps, and creating more accessible pathways (flat stones instead of cobbles, etc.). It can also include work to help direct runoff away from your home and prevent standing water.
ADA-Compliant Modifications
Adding grab bars, handrails, and walk-in showers instead of tubs in your bathrooms can make your home a more accessible place to live and could qualify for tax credits.
Home Improvement vs. Home Repair
According to IRS Publication 523, to qualify as an improvement, the task must add value to your home, adapt it to new uses, or prolong its life. If repair-type work is part of the overall improvement, you may include it. However, not all repairs, like repairing a leak or patching a hole in drywall, necessarily add value, even though they do improve the quality of your home in the short term.
There's a third category too. According to Klosterman, capital improvements are projects that extend your home's life, add value, or refit your home for new uses. These differ from home repairs, which upkeep your home but don't necessarily add value (like fixing a leak). Although you won't see tax benefits from these improvements right away, these projects can help proactively protect your home by getting ahead of potential issues and lessen the amount of tax you pay when you sell your home.
Other Renovation Tax Deductions You Might Qualify For
Home Office Repairs
If you're working from home, you may be able to deduct home office repair expenses, including repairs and maintenance, if you have a dedicated part of your home that you regularly use as your main place of business. The amount you can deduct depends on whether the project impacts the entire home or just the office. Home office improvements, however, are not tax deductible as they are classified similarly to capital improvements. These are some examples of qualifying home office repairs:
If you install a full home security system, you can potentially deduct the cost of maintaining and monitoring the system that relates to the business part of your home.
Repairing damaged outlets and wiring may be tax deductible.
You can replace your home office windows with dual- or triple-pane windows to help improve insulation and reduce noise. In addition to the tax benefits you may enjoy when you sell your home, this improvement can help lower the need for cooling and heating and lower the strain on your HVAC system.
Rental Property Repairs
If you rent out a part of your home, you may be able to deduct repair expenses from the amount of taxable rental income you receive. Limitations apply, such as if you're renting a space in your current residence. These are some qualifying examples:
Repairing leaks in your tenant's bathroom.
Addressing air leaks in your tenant's area, which can help improve insulation. You can do so by updating the weather stripping around windows and doors.
Routinely checking the air vent(s) in your tenant's part of the home, which can improve your chances of catching airflow issues, including dirty vents or leaky ducts, before they cause damage.
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