Generally speaking, the IRS won't let you deduct expenses that you incur to take care of your personal residence. Although you can deduct your mortgage interest, the IRS looks at your house as it looks at a personal car or a stereo: It's something that you buy and take care of with after-tax dollars for your own use. However, you still may be able to benefit from money that you spend on your new home.
Repairs or Capital Improvements
Repairs to your personal residence are never tax-deductible. Capital improvements, though, can reduce your taxes in the long run. The rules to determine whether what you do to your house is a repair or a capital improvement can be complicated, but the general rule of thumb is that repairs fix things while capital improvements make your house worth more, expand its use or make it last longer. For example, replacing a few faulty roof shingles is a repair. Installing a new long-lasting metal roof system is a capital improvement.
Adjusting Your Basis
When you make capital improvements to your home, you can add them to your cost basis. The cost basis is the price and closing costs for the purchase of your home, plus the cost of any improvements. It comes into play when you sell your house, since you have to pay capital gains taxes on the difference between your net selling price and your cost basis after subtracting the home sale capital gains exclusion.
While you can't deduct repairs, the IRS offers special tax credits if you purchase certain energy-efficient items for your home. For example, if you replace a broken window with an Energy Star-rated high-efficiency window, you can claim a credit for 10 percent of the cost of the window, up to $200 per window. These credits also apply to doors, hot water heaters, furnaces, air conditioners, home power generation systems and insulation.
Home Offices and Investment Properties
The rules are different if you have an investment property or if you have a home office in your personal residence, which effectively turns that portion of your home into an investment property. You can deduct the entire cost of the repair against your rental income for an investment property. For a home office, you can claim a share of the repair cost that corresponds to your home office's share of your house as a part of your home office deduction.
- Can I Be Denied a Tax Extension?
- Can I Claim EIC on a Domestic Partner's Child?
- What if I Gave the Wrong Mileage on My Tax Return by Accident?
- Can I Claim a Nursery School Tuition on My Tax Return?
- What Address Do I Send My Tax Return To?
- Define M-1 Adjustments on Tax Returns
- Taxable Income Limits
- How Much Do You Get for Claiming a Dependent When Filing Tax Returns?
- What Can You Claim as Executor of a Will?
- How to Assemble Paper Tax Returns