Federal Tax Deductions for Home Renovation
Sprucing up your home is nice, but are home renovations tax deductible? The simple answer is that renovations don't usually qualify for federal deductions, but some improvements do. For example, some energy-efficient upgrades qualify for a tax credit. Before you start renovating your home, here's what you need to know about the potential tax benefits.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- Home renovations typically do not qualify for federal tax deductions, but certain improvements may qualify for deductions and credits can help reduce taxes.
- Financing home improvements through your mortgage may allow you to claim the interest as a mortgage interest deduction.
- Medically necessary home improvements can be claimed as medical expenses if they are reasonable and do not add value to the home.
- Before the 2026 tax year, installing qualified energy-generating systems like solar panels may have qualified for a federal tax credit covering 30% of the installation cost.
Looking to spruce up your home without breaking the bank?
Renovation of a home is not generally an expense that can be deducted from your federal taxes, but there are a number of ways that you can use home renovations and improvements to minimize your taxes. These include both tax deductions and tax credits for renovations and improvements made to your home either at the time of purchase or after.
Using your mortgage to make home improvements
One way to save on the costs of home renovation is to make the improvements to the home at the time it is purchased.
If the mortgage you take out to buy a home includes additional money to make renovations, your acquisition cost for the home includes this amount. You can then include the interest on this amount as a potential mortgage interest deduction if you are itemizing your deductions.
Also, if you take equity out of your home using a cash-out refinance, second mortgage or home equity line of credit, you can include the interest on this money as home mortgage interest as long as it is used to improve your home.
Improvements that qualify as medical expenses
Improvements to your home can also be included as a medical expense if they are medically necessary.
The cost of installing entrance or exit ramps, modifying bathrooms, lowering cabinets, widening doors and hallways and adding handrails, among others, are home improvements that can be included as medical expenses if you itemize your deductions. But the deduction amounts must be reasonable, given their medical purpose, and expenses incurred for aesthetic or architectural reasons cannot be deducted.
In other words, making a residence wheelchair accessible qualifies, but adding a sculpture garden does not.
Additionally, any amounts spent for these improvements that increase the value of your home cannot be claimed as a medical related expense.
Note, however, that only medical expenses that are more than 7.5% of your adjusted gross income (AGI) are deductible. Plus, you have to itemized to claim the medical expense deduction.
TurboTax Tip:
It's important to keep track of your renovation spending so that you can use it to increase your home's basis, potentially lowering the taxable portion of the sale price and aiding in avoiding capital gains tax when selling your primary residence.
Tax credits for energy generation
Before the 2026 tax year, one of the best home improvements that could lower your taxes was to take advantage of energy tax credits by installing qualified energy generating systems.
You could get a federal tax credit of 30% of the cost of qualifying geothermal heat pumps, solar water heaters, solar panels, small wind turbines, or fuel cells placed in service for an existing or new construction home.
The credit applied to the cost, including labor and installation, and there was no maximum limit, except that fuel cells had a credit limit of $500 for each 0.5-kilowatt (kW) pf capacity. For example, if you purchased and install qualifying solar panels in 2025 for $10,000, you got a $3,000 tax credit right off the bat—not counting the future savings on your electric bill.
While the energy credits are no longer allowed for renovations made in 2026 and beyond, you can still claim them on your 2025 tax return if you haven't filed it already (or on returns for earlier years when the credits were still available).
Home sale exemption
Using the home sale exemption, qualified sellers do not have to pay capital gains on appreciation of their primary residence when it is sold for a profit of $250,000 or less if filing as single and $500,000 or less if filing married filing joint. Because home renovations increase the basis in your home, they can help reduce the amount of your sale price that is counted as profit, and therefore can potentially help get you to avoid capital gains while increasing the value of your home. Even if not, the increased basis can limit the taxable portion of the sales price.
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