Are Home Remodeling Projects Tax Write-Offs in Virginia or Federally?
When planning a home remodeling project, many homeowners in Virginia and nationwide find themselves wondering about potential tax benefits. Could improving your home also improve your tax situation? Here’s what we’ve learned over our 30+ years of remodeling homes across Northern Virginia and the DC Metro.
Federal Tax Code and Home Improvements
Under federal tax code, most home renovations are not directly tax-deductible. This means that individual expenses incurred during a remodeling project — such as painting costs, interior reconfigurations, updating kitchens, additions, etc. — cannot be claimed as deductions on a federal tax return.
However, there are notable exceptions in situations where home improvements qualify as medical expenses or involve renewable energy. According to the IRS, if your renovation is made for medical purposes, such as adding entrance/exit ramps, modifying bathrooms, or installing handrails, those expenses could be tax-deductible as medical expenses if they exceed 7.5% of your adjusted gross income.
Additionally, some home improvements related to energy efficiency qualify for federal tax credits. The Residential Renewable Energy Tax Credit, for example, allows homeowners who’ve installed alternative energy equipment like solar panels or geothermal heat pumps to claim a credit.
If you made qualified energy-efficient improvements to your home after January 1, 2023, you may be eligible for the Energy Efficiency Home Improvement Credit that covers 30% of some specific expenses, such as:
- Energy-saving improvements you’ve made to your home within the year
- Costs that come from maintaining your home’s energy systems
- Charges from having someone assess your home’s energy usage
There’s a cap on how much you can get back each year from these credits and limits on how much you can claim for some costs. For expenses related to the energy operations of your property and certain energy-saving renovations, you could claim up to $1,200. But keep in mind, that there are limits for specific items: doors ($250 each, up to $500 in total), windows ($600), and home energy evaluations ($150).
By introducing systems like eco-friendly heat pumps, biomass stoves, or biomass boilers, you could see a return of up to $2,000 every year.
To be eligible for this break, the improvements should be completed and in use between January 1, 2023, and December 31, 2032.
Not only will you be helping the environment with these improvements, but you could also see some financial benefits. Just another incentive to “go green!”
Tax Benefits of Selling Your Remodeled Home
While most remodeling costs may not be immediately tax-deductible, they can come into play and provide significant tax benefits when you decide to sell your house.
According to Brian Wendroff of Wendroff & Associates, CPA, “The cost of improvements can be added to the initial price of your property to determine the adjusted basis – a higher adjusted basis can lower your capital gain when you sell your home, possibly reducing the amount of tax you owe on the sale.”
Virginia State Tax Code and Home Improvements
In terms of Virginia State tax code, routine remodeling and repair costs, for the most part, cannot be claimed as deductions or credits on your Virginia income tax return.
However, Similar to federal provisions, Virginia also encourages energy-efficient and renewable energy home improvements. The Virginia Energy Efficient Home Improvement Credit allows taxpayers to claim up to $1,200 for other energy-efficient improvements, including up to $150 for a home energy audit, $250 for a new exterior door ($500 total for all exterior doors), $600 for new exterior windows and skylights, $1,200 for insulation and $600 for an upgraded electrical panel.
Renovations to accommodate individuals aging in place or with disabilities may qualify for the Virginia Livable Home Tax Credit if they make specific accessibility improvements to their residences. Tax credits are available for up to $5,000 for the purchase/construction of a new accessible residence and up to 50 percent for the cost of retrofitting existing units, not to exceed $5,000.
Additionally, Historic Rehabilitation Tax Credits may be available to homeowners who restore certified historic structures, encouraging residents to preserve the architectural heritage of the State of Virginia. This program is through the Virginia Department of Historic Resources.
While most home remodeling projects don’t offer direct tax write-offs in Virginia or at the federal level, there are circumstances where improvements can yield significant tax benefits.
Always remember to consult a tax professional for advice tailored to your particular situation, as navigating through the complex tax landscape can be challenging.
Investing in a home remodeling project not only improves your quality of life but, in certain contexts, may improve your fiscal situation as well.