Most home repairs are not tax deductible. Things like repairing a roof, replacing appliances and other things associated with home ownership and typical maintenance do not qualify for a tax deduction or tax credit. However, some home repairs qualify for tax deductions under certain circumstances. Before you take out your checkbook for the contractor, though, it's important to know the rules for what will qualify at tax time and make the most of your deductions.
Significance
When a home repair also includes an upgrade to the property, such as repairing an old roof and replacing it with a new, more valuable roof, this adds equity to the property. These types of repairs are tied into home improvements which will qualify as a tax deduction for the current tax year. Any improvements made to the property are considered tax deductible, since improvements add value and equity to a home. The most commonly claimed tax deductions are in relation to a room remodel, or room addition, since this will add the most value.
Function
When itemizing deductions for home improvements, it's important to take into consideration the cost of the items used to upgrade the home, costs of demolition (if applicable), contractor fees and being able to justify a home repair as an improvement to qualify for a deduction at the end of the year. This can be easily accomplished by filing all invoices and receipts for easy access. If you are doing the work yourself, however, you will not be able to deduct labor costs or contractor fees.
Types
Be cautious about being audited buy the IRS for projects that could be construed as repairs. For example, if someone in the home requires handicapped access in which doors need to be widened or a ramp or chair lift needs to be installed, documentation must accompany the deduction. Acceptable documentation according to the IRS would be a letter from a physician that expresses the need for the home modifications and improvements as well as information that determines the extent of the condition for the handicapped person. Other good examples would be upgrading a worn-out roof. This type of improvement could easily be classified as a home repair, so a home owner will have to provide documentation referencing the value a upgraded roof would add to the home's equity, which would not be added a simple roof repair or replacement. The key is to be able to show that the improvement adds value to the home in order to qualify for a deduction with the IRS.
Tax Deduction vs. Tax Credit
In many cases, the IRS will offer home owners a tax credit for making improvements to their homes that make them more energy efficient or improvements that harness alternative sources of power, such as solar energy. A tax credit is offered to home owners by the federal government and the state of California to add solar panels to their property, reducing the dependency on traditional electricity and gas. This credit will vary from state to state. However, the IRS tax credit is the same regardless of geographic location. Other good examples of tax credits are home owners using wind power or adding solar attic fans to help make their home more energy-efficient and less dependent on fossil fuels.
Considerations
Prior to making a choice on home improvements, it is best to consult with a licensed certified public accountant on the benefits of home improvements and what makes the most financial sense for your own situation. It is also wise to get professional advice up front on any improvements that could also be classified as repairs in order to become educated on the correct filing statuses and information before you sign off on your tax return.
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