Which Home Improvements Are Tax Deductible?

Most home improvement costs are not directly tax deductible in the year you pay for them. But that does not mean they have no tax value. Several categories of improvements qualify for federal tax credits, others add to your home’s cost basis and reduce capital gains when you sell, and some qualify as medical expense deductions. Knowing which category your project falls into before you start can make a meaningful difference at tax time.

A note on timing: Tax law changes frequently. The federal energy credits described below were significantly expanded by the Inflation Reduction Act in 2022 and were authorized through the 2025 tax year. Verify current credit availability at IRS.gov or confirm with your CPA before planning around these credits for work completed in 2026 or later.

Originally published February 2015. Updated October 2026.

Home Improvements That Are Generally Not Deductible

The following common improvements typically do not qualify for a tax deduction or credit in the year they are completed:

• Painting the interior or exterior of your home
• Landscaping and yard improvements
• Appliance replacements like refrigerators, dishwashers, or washers and dryers
• Like-for-like replacements of windows, flooring, or fixtures that don’t meet energy efficiency thresholds
• General cosmetic updates to kitchens or bathrooms

This does not mean these projects have no financial value. A well-executed kitchen remodel or bathroom renovation adds to your home’s market value and contributes to your adjusted cost basis, which matters when you eventually sell.

Energy Efficient Home Improvement Credit (Section 25C)

The Inflation Reduction Act substantially changed the rules for this credit beginning in 2023. It is no longer a one-time lifetime credit. It is now an annual credit, meaning eligible homeowners can claim it every year they make qualifying improvements, up to the annual limits.

Credit rate: 30% of the cost of qualifying improvements

Annual limits:

• $1,200 overall cap per year for most improvements
• $2,000 per year for heat pumps and heat pump water heaters (this limit is separate from and in addition to the $1,200 cap)
• $600 per item for central air conditioners, water heaters, and furnaces
• $600 total for exterior windows and skylights
• $500 total for exterior doors ($250 per door)
• $150 for a qualifying home energy audit

What qualifies:

• Exterior doors, windows, and skylights meeting Energy Star requirements
• Insulation and air sealing materials meeting current IECC standards (labor costs do not qualify for insulation)
• Heat pumps and heat pump water heaters
• Natural gas, propane, or oil water heaters, furnaces, and boilers meeting CEE highest-tier efficiency standards
• Central air conditioners meeting efficiency requirements
• Electrical panel upgrades of 200 amps or greater
• Qualifying home energy audits

Key rules: The home must be your primary residence and must already exist — new construction does not qualify. The credit is nonrefundable and cannot be carried forward to future tax years.

Residential Clean Energy Credit (Section 25D)

This is the credit that applies to solar panels, solar water heaters, and related clean energy systems. Unlike the 25C credit, this one has no annual dollar cap and unused amounts can be carried forward to future tax years.

Credit rate: 30% of the total installed cost, including labor

What qualifies:

• Solar electric panels
• Solar water heaters (must be SRCC-certified)
• Geothermal heat pumps meeting Energy Star requirements
• Small wind turbines
• Battery storage systems with a capacity of at least 3 kilowatt-hours (qualifying since 2023)
• Fuel cells (limited to $500 per half kilowatt of capacity, primary residence only)

Key rules: Applies to your primary home and, for most improvements, a second home as well. Unlike the 25C credit, this one can be carried forward if it exceeds your tax liability. Solar roofing tiles and solar shingles qualify; traditional roofing or structural components generally do not.

Both the 25C and 25D credits were authorized through December 31, 2025. Check IRS.gov or speak with your CPA about the status of these credits for work completed in 2026.

Medical Expense Deductions for Accessibility Improvements

This is a category many homeowners overlook. If you make improvements to your home for medical reasons — and a physician can substantiate the need — the cost may be deductible as a medical expense to the extent it does not increase the home’s fair market value.

Qualifying improvements include:

• Wheelchair ramps and widened doorways
• Grab bars and roll-in showers
• Stair lifts and elevators
• Lowered kitchen and bathroom counters for wheelchair access
• Handrails and non-slip surfaces

Medical expense deductions are only available to the extent your total medical expenses exceed 7.5% of your adjusted gross income. This is a meaningful threshold, but for homeowners making significant accessibility modifications, it is worth documenting carefully and reviewing with a tax professional.

Murray Lampert designs and builds accessibility improvements in-house. If you are making these changes for medical necessity, we can provide the contractor documentation your CPA will need.

Capital Gains and Your Home’s Cost Basis

This is where most major home improvements pay off at tax time, even if they are not deductible in the year you pay for them. Every qualifying improvement you make adds to your home’s adjusted cost basis. A higher basis means a smaller taxable gain when you sell.

Current IRS rules allow most homeowners to exclude up to $250,000 in gain ($500,000 for married couples filing jointly) from the sale of a primary residence. If your gain exceeds those thresholds, every documented improvement works in your favor.

What to keep: contractor invoices, signed contracts, building permits, and inspection final sign-offs. A permit trail also demonstrates that improvements were done to code, which matters both for your cost basis records and for future buyers.

Casualty Losses: What Changed in 2017

The 2015 version of this post said that theft, accidental damage, and flooding could qualify for casualty loss deductions. That changed with the Tax Cuts and Jobs Act of 2017.

Under current rules, personal casualty losses are generally deductible only if the loss occurred in a federally declared disaster area. Standard theft, car accidents on your driveway, and most flooding events no longer qualify for the deduction unless the president has issued a federal disaster declaration for your area.

If you experience damage from a federally declared disaster, document everything before making repairs: photographs, contractor estimates, and insurance correspondence. Consult a CPA familiar with casualty loss rules before filing.

California-Specific Tax Considerations

Federal tax rules are only part of the picture for California homeowners. The state has its own rules that differ from federal law in ways that matter.

California does not offer state income tax credits that mirror the federal energy credits. There is no California equivalent of the Section 25C or 25D credits. The federal credits are valuable; do not assume California offers a parallel benefit, because it does not.

California Property Tax Exclusion for Solar

Installing a qualifying active solar energy system on your home does not trigger a property tax reassessment under Proposition 13. The assessed value of the system is excluded from your property’s taxable value for as long as the system remains in place. For San Diego homeowners, this is a meaningful benefit on top of the federal 25D credit — your property taxes do not increase when you add solar panels or a solar water heating system.

California Capital Gains Are Taxed as Ordinary Income

California taxes capital gains at ordinary income rates, up to 13.3% at the top bracket. There is no preferential capital gains rate at the state level. The federal $250,000/$500,000 primary residence exclusion still applies, but any gain above that threshold is taxed as ordinary income in California — not at a lower rate. For San Diego homeowners whose property values have appreciated significantly, accurate documentation of every improvement is especially important. Every dollar of documented cost basis directly reduces the gain subject to California’s top income tax rate.

TECH Clean California and SDG&E Rebates

California utilities and state programs offer rebates for qualifying energy-efficient improvements that are separate from and in addition to federal tax credits. San Diego Gas & Electric participates in programs that may provide point-of-sale or mail-in rebates for heat pump water heaters, heat pump HVAC systems, smart thermostats, and insulation upgrades. The TECH Clean California program has offered rebates for heat pump installations specifically.

These rebates reduce your out-of-pocket cost but generally do not reduce the federal tax credit calculation. Check SDG&E’s current rebate offerings and the California Energy Commission’s programs at the time of your project, as availability and amounts change.

California Wildfire and Federally Declared Disaster Losses

Given California’s ongoing wildfire history, federally declared disaster areas in California do qualify for casualty loss deductions under current IRS rules. If your property sustains damage in a federally declared disaster — including wildfires, earthquakes with a federal disaster declaration, or flooding in a declared area — uninsured losses may be deductible. Document all damage with photographs and professional assessments before making repairs.

A Note on Home Office Improvements

If you maintain a qualifying home office — used regularly and exclusively for business — a proportional share of certain whole-home improvements may be partially deductible. This applies to improvements that benefit the entire home, allocated by the percentage of your home used as office space. The rules are specific, and documentation requirements are strict. This is one to work through with your CPA rather than estimate on your own.

The Record-Keeping Rule That Always Applies

Regardless of whether a specific improvement qualifies for a credit or deduction, maintain organized records of every project: the date of service, contractor name and license number, cost, permit number, and final inspection sign-off. These records matter for cost basis calculations, warranty claims, insurance disputes, and disclosure when you eventually sell.

At Murray Lampert, every project we complete is fully permitted and documented. We provide clients with a complete paper trail from design through final inspection — exactly the records that matter most at tax time and at resale.

The information in this post is for general educational purposes and reflects rules in effect as of the 2025 tax year. Tax law changes frequently. Consult a licensed CPA or tax advisor before making decisions based on this content.

Murray Lampert Design, Build, Remodel has served San Diego homeowners since 1975. CA Lic. #458038. A+ BBB rating since 1976. We specialize in fully permitted whole-home remodels, room additions, kitchen and bath renovations, ADU construction, and accessibility improvements, all designed in-house by our architectural and interior design team.