Is Kitchen Remodeling Tax-Deductible? The Answer Might Surprise You!

Is Kitchen Remodeling Tax-Deductible? The Answer Might Surprise You!

With tax season around the corner, are you wondering if kitchen remodeling tax-deductible or not? To put it simply, if a home improvement project is tax-deductible, remodeling a kitchen can cut down on the amount of tax you need to pay during tax season. It can also help you balance out your kitchen remodel costs. While tax cuts are always welcome, you also need to be aware of the guidelines that the IRS lays down before you claim them.

Repair or Remodel?

Unfortunately, minor repairs to a home are not tax-deductible as it is firmly instituted in US tax law. If you need to fix a broken floor, you cannot claim it while paying your taxes during tax season. However, if improving the floor is part of a bigger plan for remodeling your kitchen, you probably can claim it as a tax deduction. 

Remodeling a Kitchen 

You can categorize a kitchen remodel as a home improvement project because it adds value to the home. Besides, it improves the living conditions of the residents, and there are a number of different categories of home improvement that make kitchen remodeling tax-deductible. 

For instance, if it is for medical reasons, such as giving access to disabled people, then under most circumstances, it will qualify as a home improvement and follow the due process.

Similarly, if you need to commence any repair projects while upgrading your kitchen, couple it with the remodeling project because it can help you claim all of it as a tax deduction. 

Capital Improvements on Your Primary Home

When you sell a capital asset like real estate, the government usually wants a piece of the profit. However, as an incentive reassuring homeownership, the IRS allows you to exclude up to $250,000 of profit on the sale while filing taxes as an individual, as long as you have lived in it and owned it for at least two of the last five years. 

Similarly, taxpayers who file a joint return with a spouse can exclude up to $500,000 of that gain. Either way, if your gain doesn’t exceed the maximum limit, you likely won’t need to report the home sale on your tax return. 

Capital gains are usually calculated by taking the sale price of your home and subtracting it with the adjusted cost basis. However, adjusting the cost basis is a decorative way of saying the principal value of the house, i.e., what you paid for it at the time of possession, along with the cost of any other qualifying capital improvement and selling fees like agent commission.

Capital Improvement vs. Repair 

You need to know that you cannot simply assume any old plumbing repair will count as an improvement. As defined by the IRS, a capital improvement increases the home’s value, alters its uses, and materially extends its useful life. 

Let’s say that you are fixing something like a minor pipe that’s broken. In that case, it is usually considered basic maintenance, and it won’t qualify as a tax deduction unless you are using the home as an investment property.

According to the IRS, capital improvements include:

1. Home Additions: Adding onto a home’s kitchen, bathroom, bedroom, garage, or patio. 
2. Exterior: A new room, windows or doors, even a new satellite dish.
3. Insulation: Adding insulation to the walls, floors, or ducts. 
4. Systems: Adding or replacing HVAC systems, a furnace, central humidifier, soft water system, or lawn sprinkler system. 
5. Lawn and Ground: Landscaping, driveway work, fences, retaining walls, or a swimming pool. 
6. Interior: New kitchen appliances, kitchen upgrades, new flooring, or a fireplace installation. 
7. Plumbing: Improvements to water heater, septic system, or the water filtration system. 

Is Kitchen Remodeling Tax-Deductible?

Many types of home improvement projects, such as kitchen remodeling in some circumstances, can qualify for tax credits. Hence, it is essential to understand the difference between a tax deduction and a tax credit. 

A tax deduction comes from the income, so you pay less tax. On the other hand, a tax credit comes directly from the amount of tax owed. Therefore, you pay less in tax with a tax credit than with a tax deduction. 

For instance, if you add new windows or better cooling or heating equipment in your kitchen, these items qualify for tax credits.