Maximizing Tax Benefits for Homeowners and Real Estate Investors: A Guide to Repairs and Improvements"

Eric Frazier Esq. April 20, 2023


Under current tax law, homeowners cannot take a tax deduction for any of the costs they incur for home repairs. As a consequence, homeowners should, whenever possible, make their repairs in connection with a home improvement job instead. In general, home improvements are defined by the IRS as installations that increase the value of the home. For instance, a new roof, new wall-to-wall carpeting, and new water pipes are value-adding home improvements, while patching up the existing roof, carpet, or pipes are not. When the homeowner eventually sells the house, they can use the costs of their home improvements to reduce the amount of their capital gain and the attendant tax liability.

Just as a side note, a homeowner can fully deduct home improvement costs in the same year the cost is incurred for qualified and bona fide medical purposes. So don't hesitate to install that jacuzzi when your doctor prescribes it for your chronic back pain LOL!!!

Now, the opposite is true if you own rental property or have a home office. In these instances, you should favor repairs over improvements. The IRS permits you to deduct the cost of your repairs in the year the cost was incurred. In contrast, if you make improvements to your rental property or home office, you can only take gradual depreciation deductions over the life of the improvement.

Please remember, for home office deductions, you must be self-employed, not working remotely for your employer. If your office occupies 25% of your home, you can only deduct 25% of the repair cost. You can deduct 100% of the cost if the repair pertains solely to your office space.

IRS rules can be byzantine, and these general rules may not apply to your specific situation, so proactively confer with your advisors before deploying your tax strategies.

Eric Frazier, Esq.

Law Office of Eric W. Frazier

99 Wall St., Suite 3042 New York, NY 10005

(646) 973-6499

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