The IRS allows homeowners several valuable deductions: mortgage interest, property taxes and the costs of reserving part of the residence for a home office. Ordinary maintenance and repairs on your home are not tax-deductible, whether or not they are covered by homeowners insurance or a home warranty. The only tax breaks the IRS might offer for repairs would be casualty losses or repair expenses related to a home office or a business located in your residence.
Deductions and Non-Deductibles
As a homeowner, the only ordinary costs you may deduct are related to property taxes and mortgage interest, as well as casualty and theft losses. The IRS allows you to deduct property taxes you paid, as well as mortgage interest, as long as you itemize deductions on Schedule A. You may also deduct the cost of any mortgage insurance, as well as the damages caused by a natural disaster, a fire, vandalism or an act of terrorism, also known as casualty losses. You list casualty and theft losses on Form 4684; the IRS requires you to add together the losses, subtract $100 for each separate event, and then subtract 10 percent of your adjusted gross income. The result is the limit of losses you can then deduct on Schedule A. You must reduce the amount by any reimbursements you received from insurance.
You can't deduct the cost of routine maintenance or repairs to your home, even if your insurance or warranty didn't cover the cost. If you reserve part of your residence as a business or home office, however, you can deduct unreimbursed repair costs on Form 8829, on which you list business expenses. You must multiply the cost of the repair by the portion of the home that you are using for the business or office. You can also deduct the proportional cost of insurance you pay for the business office.
If you are assessed property taxes for the repair of damaged public property, then you may deduct these assessments on Schedule A. If flooding takes out streetlights on your block, for example, and you are assessed for those repairs, you can deduct the assessment. You can't deduct assessments for improvements, such as the construction of a sidewalk, or the installation of curbs and storm drains. The cost of these assessments is added to the basis of your home, which will lower the capital gains tax you owe (if any) when you sell the residence.
Direct and Indirect Expenses
When deducting unreimbursed repairs for a home office, you must identify the cost as either a direct or an indirect expense. A direct expense is one that benefits only the home office area. An indirect expense benefits the entire house and must be apportioned for the area you're using as a home office. This is simply the percentage of the home's entire square footage that is used for business purposes. If you would rather not deal with Form 8829 and its required record keeping, you can still deduct unreimbursed repair costs incurred by your business on Schedule C.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.