Can Home Improvement Costs Be Used as a Federal Tax Deduction?

Adding a deck to your home or remodeling your kitchen are not deductible expenses at tax time. The IRS allows some write-offs on your personal home, such as mortgage interest and property tax, but improvements don't usually qualify. If you itemize deductions, you can write off the sales tax on any materials you purchase. If the improvements increase your property value, the extra property tax you pay is also deductible.

Business Use

If you use part of your house for business, you can deduct part of your home expenses. Say you have a home office that takes up 9 percent of your house, based on square footage. You can deduct 100 percent of improvements to the home office as a business expense, and 9 percent of home-improvement projects that affect the whole structure, such as installing a new roof. Projects that don't affect your office, such as landscaping or a kitchen remodel, don't qualify.

Business Rules

You can't claim the write-off by sitting on your couch and calling your living room a home office. The business-use deduction requires you reserve part of your house exclusively for business, with a few exceptions, such as running a day-care. The work space should be your primary place of business. If it isn't but you do your administrative work there, or use it to meet customers, you can still qualify for the deduction.

Basis

For major home-improvements -- a new deck, a new roof, a remodeled bathroom -- the tax benefit comes when you finally sell the house. You pay capital gains tax on the difference between your "adjusted basis" and your sale price. The basis is your purchase price, and improvements are part of the adjustment. If you bought the house for, say, $190,000 and sell for $250,000, that's $60,000 in gain. If you spent $10,000 on home improvements, you subtract that so there's only $50,000 in profit.

Proving Adjustments

If you make home improvements that affect your basis, keep the records until you sell the house. That will help you prove your case if the IRS audits your taxes. Improvements that might get your basis adjusted include landscaping, adding a satellite dish, replacing the plumbing or air-conditioning, or laying down wall-to-wall carpeting. Don't worry about the receipts for fixing leaks or frayed wiring -- simple repairs don't influence your basis and aren't deductible.