Many home improvements are capital improvements. Capital improvements are tax deductible under the IRS if the home improvements meet a number of conditions. Home improvements are a permanent addition to the home that increases the value of the home. Therefore, home improvements are substantial ones in which the property value of the home is appreciated, the life of the home property is extended, and the functionality of the home property is increased.
For example, putting up a fence, adding a room, installing a driveway, adding a pool, installing a new roof, installing a new built-in heating system are all capital improvements.
Capital improvement increases the value of your home. For example, adding a new room increases the value of the house. The new room increases the ability of the property to earn more income. Therefore, the value of home ownership also increases.
As another example, adding a garage increases the value of the home. Tenants will pay extra for a parking space. And again, the new garage increases the property’s ability to earn more income. Therefore, the value of home ownership also increases.
On the other hand, home repairs are not home improvements according to the IRS. Repairs are expenses that keep the property in good repair. And, the owner of the rental property can claim the expenses in the year in which the expenses are incurred.
For example, repainting the walls, patching the ceiling, installing wallpaper, replacing the carpet, caulking the seams, and repairing the windows are home repairs.
In order to claim the capital improvement tax deductible, the owner must use the depreciation method. The depreciation method is a way to recover the cost of capital improvements by depreciating the expense over the expected useful life of the property.
