The Internal Revenue Service does not typically allow taxpayers to deduct the costs of home remodeling from their income taxes. However, the cost of the home improvements can be added to the taxpayer's basis in the home which will reduce the taxes owed on the sale of the home.
The IRS treats home repairs differently than home improvements. Home repairs refer to replacing broken or worn out parts, such as a broken window, and cannot be deducted and do not increase your basis in the home. Home improvements increase the value of your home, such as a new kitchen or bathroom.
You can deduct the interest you pay on a loan to improve your home, subject to the same limits as mortgage interest. For example, if you take out a home equity loan for your home improvements, you can deduct the interest on the first $1 million ($500,000 if you are married filing separately) of the loan.
If you remodel your home for medical reasons, such as a wheelchair ramp for a disabled person, you can include the cost as part of your medical expenses deduction. This deduction allows you to claim a deduction equal to your medical expenses that exceed 7.5 percent of your adjusted gross income but you must itemize your deductions in order to claim it.
- Creatas/Creatas/Getty Images