Expenses for ordinary and necessary expenses to maintain or improve the condition of your home are deductible, but if the cost is so large that it's considered a structural change, it may need to be depreciated over time. For more information on what qualifies as a deduction, how to document your expenses and what types of repairs are deductible, set up an appointment with Sanjiv Gupta CPA.
But here are the basics:
You may be able to deduct home repair expenses, but you must meet several rules.
To deduct the cost of repairs, you need to understand not only what's deductible but also when you can claim deductions and which records to keep. Then there are special rules that apply if the property is your home or a vacation home.
Home repairs, whether you pay for them or not, aren't deductible. You can't deduct the cost of fixing a leaky roof, repainting the house or mowing the lawn just because of wear and tear. However, if you're making improvements to increase your property value, they may be deductible.
First, you'll need to determine the difference between a repair and an improvement. One rule of thumb is that a repair keeps your home in good working order while an improvement adds to its value or prolongs its life. For example, fixing a loose stair banister is a repair. But replacing deteriorated wood under the stairs is an improvement because it adds to the value of your home.
There are several factors to consider in this distinction, including how long you've owned the home and local property tax assessments.
Generally, you can only deduct repair costs if they are necessary for medical or health reasons or to accommodate a disability. You may also claim them if you used your home for business or got a home office deduction and you need to repair the space to use it as originally intended.
You can also deduct repairs that maintain your home's value if you're going to sell your house or refinance. You may be able to claim this deduction even if you don't plan to sell it, but only as long as you plan to reduce your basis in the house below what you paid for it.
For instance, say you bought a house for $200,000 and spent another $20,000 improving it over the years. But now your home is only worth about $160,000 because of general wear and tear. If you plan to reduce your basis in the home to $120,000 and sell it for that much, you can deduct the $20,000 of wear and tear repairs (assuming you use your home for personal purposes), provided you aren't claiming a depreciation deduction.
You generally must capitalize the cost of an improvement and depreciate its cost over several years as part of your basis in the property.
If you're self-employed, keep track of all your repair expenses to help calculate deductible home office costs. If you use part of your home regularly and exclusively for your business, you may be able to claim a home office deduction.
You generally deduct repairs and maintenance costs in the year you pay them. However, if you have an electric water heater that has developed cracks on its tank, you can't deduct the cost to replace it until the tank actually leaks and is unusable. If you pay to have a roof repaired, but then find that the roof was never leaking in the first place, you can take a deduction for its repair costs, provided your home is used for personal purposes.
In this case, if your home is used for business or you claim a home office deduction, you can't deduct the repair costs.
If your home is damaged by an uninsured disaster, casualty loss may be deductible. If your property is not completely destroyed, but damaged because of fire, tornado or other disaster, you may qualify for this deduction if it wasn't insured and you haven't fully recovered insurance proceeds.
This includes damage to the interior or foundation of your home. The deductible amount is usually the total uninsured losses less the value of any insurance you receive or expect to receive.
If part of your property was destroyed and it's not practical for you to repair it, such as with a burned down building, you can take a deduction for the loss.
If the damage was less than 50 percent of your home's value, simply divide the cost of repairs by the number of months in the year. That's how much depreciation you can claim on your tax return.
For example, if fire damages your house and it takes six months to repair, you can claim one-sixth of the cost as a depreciation deduction.
If the damage is more than 50 percent you must reduce the portion that is repaired by this percentage, too.
However, if your property was totally destroyed and later recovered from your insurance company for a total policy limit of $200,000, you lose all rights to a deduction. This is so because you can't claim a loss on a destroyed home if it gets replaced or repaired.
Can you deduct the cost of fixing your HVAC system?
In some cases, yes. If you have to replace parts just to keep your HVAC system running, those costs are generally deductible as repairs. This generally does not include routine maintenance such as changing filters. But if a repair brings your system back to its original operating condition, it can be deductible under the terms above.
Can you deduct an emergency room bill?
Only if you have a policy that covers injuries due to accidents. If you don't, the costs associated with an injury are usually considered personal medical costs.
Can you deduct the cost of installing a pool?
Yes, if you use the pool or spa for business purposes. Otherwise, these are considered personal expenses. However, you can depreciate it over seven years.
You may need to keep receipts on all repairs and home improvements so that you have proper documentation for your taxes.