Your Home Renovation Could Be Tax Deductible—Here's What You Should Know

Depending on the type of renovations, you may be able to save money on your taxes this year.

It's officially tax season—one of the most daunting and stressful times of the year for many of us. However, if you're a homeowner and you renovated or did some upgrades last year, we have some good news for you: You might be able to save some money on your taxes this year, depending on the project.

Below, we'll walk you through the basics aboutdeducting home renovation and upgrade expenses. Keep in mind that it's always best to work with a tax professional because you don't want to make a mistake or, worse, leave your hard-earned money on the table. "There are many tax strategies and deductions available," Shatonya "Rosie" Thomas, CEO and founder of Thomas Financial says. “Many taxpayers overpay in taxes year after year by not taking the maximum deductions.”

Related: Our Best-Ever Tips for Saving Money

Energy-Efficient Upgrades Could Qualify for a Tax Credit

While we all wish we could deduct a new kitchen or a fancy, spa-like bathroom from our taxes, the IRS is unlikely to go for that any time soon. However, some less glamorous, energy-efficient upgrades can save you a few dollars off your taxes this year. “At the Federal level, the Energy Efficient Home Improvement Credit offers tax incentives for homeowners making energy-efficient upgrades to their homes," DR Richardson, co-founder of Elephant Energy, explains. "Under this expanded section, starting in tax year 2023, homeowners became eligible to receive tax credits offsetting some of the costs of energy-efficient upgrades.”

Some examples of this, Richardson says, include energy-efficiency improvements like insulation, heat pumps, and heat pump water heaters.

Can You Deduct Cosmetic Home Upgrades?

Cosmetic upgrades are rarely deductible, but there are a few exceptions. Have you ever thought about installing a skylight? Are your windows old and drafty? Want to replace your old front door? These upgrades could be eligible for the tax credit if they improve energy usage.

Deductions Aren’t Unlimited

Like most tax deductions, these upgrades have caps. “Energy efficiency credits are capped at $1200 per year, and heat pump and heat pump water heater credits are capped at $2000 per year,” explains Richardson. “The credit has no lifetime limit, which means you can apply for it for eligible expenses every year.”

It's typically structured as a 30 percent credit, with a cap. So for example, the heat pump tax credit is 30 percent up to $2000. So if you spend $1000, then you could get a $300 credit. But if you spend $10000, you could get a $3000 credit.

State deductions may also be available depending on where you live.

Is Decorating Ever Tax Deductible?

Decorating expenses are rarely tax deductible unless they qualify as business expenses. “To ensure tax deductibility, it's crucial to clearly define the purpose of decorating, ensuring it's directly related to your business activities," Thomas explains. "Keep the decoration business-related, understand the types of deductible decorating, maintain accurate record-keeping, and stay in compliance with the IRS."

In addition to your specific work-related equipment (like your computer or other technology) furniture and decor in your home office could be considered a deduction as well. If you bought a new desk, a more supportive chair—or even a piece of artwork to have in-frame for Zoom calls—these could all qualify.

Small-scale renovations may also be tax deductible, such as having custom cabinetry built to hold supplies or paperwork.

Just be sure to keep all your receipts and inform your accountant.

Related: 7 Low-Cost Projects That Will Boost Your Home's Value

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