Most home repairs are not deductible.
Your home occupies a unique place in your financial picture. Although it is a major asset, like a stock or bond portfolio, it is also a tool in your daily life, providing shelter to you and your family. As such, the Internal Revenue Service treats your home as both an expense and an asset, especially with regard to repairs.
Repair or Investment
The Internal Revenue Service treats repairs differently from improvements. A repair would be a change that you make to your residence to return it to proper function, such as replacing a broken light bulb or fixing a leaky pipe. An improvement is something that adds to the value of the house, such as building an addition, replacing linoleum with hardwood or installing a swimming pool. Some improvements, such as putting on a new roof, or replacing a broken water heater with a new high-efficiency tankless model, are also considered repairs. You need to classify the work you do to your house into one of these two categories.
Home Repairs
Repairs to your residence are generally not tax deductible, as they are considered a normal requirement of using the home as a residence, as opposed to an investment.
Investing in Your Home
If you make repairs that are also investments in your home, they are generally not tax deductible. The IRS will, however, let you add the cost of the investment to the basis in your home, reducing your tax liability when it is sold. For example, if you bought a house for $200,000 and added a $50,000 addition, $20,000 swimming pool and $15,000 roof and then sold it for $300,000, you would only have a $15,000 gain.
Casualty Losses
If your home or property is damaged but not destroyed by theft or other casualty, such as a storm or earthquake, the IRS allows you to deduct your losses, up to the amount that is covered by insurance. Your ability to deduct these losses, which include repairs, is limited. More specifically, the IRS requires you to subtract $100 and 10 percent of your adjusted gross income (AGI) from your loss to determine the deductible amount. For example, if your AGI is $50,000, and you had $10,000 in casualty losses, you would subtract $5,100 from the $10,000 to come up with a $4,900 deduction.
Homes Held for Investment Purposes
If you own a home as an investment, the IRS is much more generous. In this instance, all of your repair expenses are completely deductible against the home's gross income, as are all of its other operating expenses. Capital expenditures, though, are treated similarly to improvements on your home, and cannot be expensed. They can be added on to your basis, though, to reduce your capital gains liability at the time you sell the asset.
Tags: your home, generally deductible, gross income, Internal Revenue, Internal Revenue Service
