7 Tax Breaks for Home Improvements That Even Savvy Homeowners Sometimes Miss

When many think of tax deductions, donations to charities or medical expenses might come to mind. 

But there are also home renovation projects that let you take deductions to reduce your taxable income and credits to lower the amount you owe, so you can keep more money in your wallet.

Here's what you need to know and how to leverage these tax opportunities.

If you're adding value to your house through additional bedrooms, bathrooms, energy-efficient lighting, or a new roof, then that is an improvement. 

It increases your property value and could be tax-deductible, particularly if tackled in the same year you sell.

Meanwhile, a repair is something that simply returns a home to its original state. That could mean fixing a toilet or replacing windows without installing new energy-efficient products.

There are stipulations and requirements surrounding any of the improvements and repairs that you can claim. 

In some cases, you can claim these once in the year they were made, while in others, they can be spread over several years. This is called depreciation, and you can claim a portion every tax year for a set amount of time.

In other cases, you can claim certain improvements or repairs if they were made prior to the sale of a property.

Since many people work from home and have no plans to go back to an office, home office improvements should be top of mind when it comes to tax savings. 

The space must be used regularly, and it can only be used as a home office as the taxpayer's principal place of business. It can't be a home office that doubles as a workout space or a guest bedroom.

In the case of a home office, improvements, like new paint or lighting, may be deducted over time with depreciation, but specific repairs might need to be taken in the year they occurred.

This deduction area is a no-brainer for the many people who've transitioned to remote work.

While landscaping for personal use is generally not tax-deductible, there are some workarounds. 

Landscaping improvements that increase the value of your home can typically be considered capital improvements. That means they can be added to the cost basis of the property and depreciated over time.

If you're a landlord, you might be able to deduct landscaping expenses as operating expenses for rental properties, if they're considered ordinary and necessary for the production of rental income.

This is where you can take advantage of that kitchen or bathroom renovation you've been dreaming of, as well as more practical projects like HVAC and electrical improvements.

If you plan to sell your house and need to make improvements to make it market-ready, you can deduct those improvements as long as they are capital improvements, which add to its value, prolong its useful life, or adapt it to new uses.

While you can't deduct the cost in the year you spend the money, you can add the cost to your home's cost basis, which could reduce the amount of your taxable profit when you sell the house.

One of the newest ways to improve your home while saving on your tax bill is to invest in improvements that make your home more energy-efficient. According to the IRS, if you make qualified energy-efficient improvements to your home, you may qualify for a tax credit up to $3,200.

You could get a tax credit for installing more energy-efficient HVAC systems, water heaters, windows, doors, roofing, and more. 

Because these credits vary by state, consult a tax professional to determine your best path toward energy efficiency.

If you make repairs to rental properties, they could be tax-deductible and can help you build wealth. The rules around these deductions are much more generous than those for a primary residence.

Repairs include expenses incurred to keep a property in good, habitable condition without improving its value or extending its useful life. The cost of repairs is fully deductible in the year they are made.

If you make an improvement that increases the value of the property, extends its useful life, or adapts it to new uses, it can be capitalized and depreciated over time, usually 27.5 years for residential rental properties.

This would include something like adding a new roof, remodeling a kitche, or adding new flooring.

If you have to widen doorways to accommodate a wheelchair, install a ramp, lower cabinets, or a walk-in tub, or make other medically necessary adjustments for anyone in the household, these can be used as itemized tax deductions.

There are specific requirements for how these can be used. While you'll probably make these improvements regardless of a tax strategy, it's helpful to talk to a tax professional first.

Suppose you're in the unfortunate situation of making repairs because of a flood, tornado, hurricane, or other natural disaster. In that case, you should be able to claim those repairs as tax deductions if it was a federally declared disaster.

Make sure to keep all receipts. However, if your insurance company reimbursed you for the repairs, you can't claim those repairs as a tax deduction.

Tackling projects to help reduce your tax burden is a smart way to grow your bank account when you're doing better financially. 

If you've already improved your home this year, make sure you're prepared for tax season before it gets here. If you qualify for some of these deductions, you can save quite a bit.

However, undertaking extra projects just to try to save money on taxes should be seen as a bonus, not a strategy, particularly if you're not flush with extra income this year.