If there is one home remodeling project that almost every homeowner undertakes at least once, it is a kitchen remodel. And like all things remodeling, it does not come cheap.
So it’s no surprise homeowners are always on the lookout for new ways to save up their project costs without compromising on the outcome.
One such popular cost saver are tax deductions that a kitchen remodel could qualify you for.
But is a kitchen remodel tax deductible practically?
Now, that’s a question which has no straightforward answer. That’s because although kitchen remodeling isn’t fully tax-deductible, there are various scenarios where you might be able to claim deductions and benefits.
Curious which kitchen makeovers can qualify you for tax deductions and to what extent?
Read on, as i”ve detailed them all along with my own insights as a kitchen remodeling specialist.
Is a kitchen remodel tax deductible or not?
Let me start by addressing the obvious, ie., whether or not is kitchen remodeling tax deductible.
As I just mentioned, a kitchen remodel can be partially tax-deductible in some situations. Meaning you can’t claim tax benefits on any random project you undertake.
You see, the Internal Revenue Service (IRS) has set out clear differences between a home improvement and repair. Herein, while the former qualifies for deductions at times, the latter usually doesn’t.
I’ve explained tax-deduction criteria for both home kitchen improvement and repair for you to understand better:
1. Kitchen improvement
A kitchen improvement is anything that you do to increase the lifespan of your kitchen or its overall value. And this includes everything from installing energy-efficient appliances to custom built cabinets to a countertop upgradation, and more.
Now, some of these improvements can qualify you for tax benefits. For instance, let’s say you replace your existing kitchen appliances with ones that are Energy Star rated, you could qualify for federal tax benefits.
2. Kitchen repairs
Kitchen repairs are completely different from improvement since they’re meant to maintain your kitchen’s current condition.
For instance, if you’re fixing a leaky kitchen faucet or replacing broken kitchen appliances, these will qualify as repair. And you can’t claim any renovation tax deduction on these.
Nevertheless, if you carry these repairs as part of a larger kitchen improvement project, you can still claim some tax benefits.
When is kitchen remodeling tax deductible?
Now that you know which are the situations that can save you taxes on a kitchen remodeling, you might be curious when exactly you can claim these benefits.
Although kitchen renovation tax deduction scenarios aren’t clearly defined, I reviewed the IRS tax policy, among other sources, to get a precise answer. And I found three events that can surely save you on taxes.
Here’s when you can claim tax deductions on kitchen renovation:
1. Energy efficiency upgrades
If there’s one huge tax saver for kitchen renovation, it is surely energy efficiency upgrades. That’s because they qualify you for federal tax credits for energy efficiency as per the Inflation Reduction Act (IRA) of 2022.
In fact, apart from Energy Star rated kitchen appliances like HVAC systems, refrigerators, etc., you can also claim these benefits on efficient windows, doors and insulation systems.
The best part: You can recover up to 10 percent of your upfront investment by upgrading to these appliances and systems.
2. Upgrades as part of medical necessity
If you remodel your kitchen out of a medical necessity, you can claim tax deduction on some of your expenses.
For instance, let’s say you’re lowering the countertops for wheelchair access or installing special purpose fixtures for a family member with mobility issues.
These are expenditures that qualify as medical expenses. And as per IRS guidelines, medically necessary upgrades can qualify for tax deductions if they exceed 7.5% of your adjusted gross income.
3. Remodeling for business purposes
Yet another interesting situation that can qualify you for a tax deduction is when you’re remodeling your kitchen for business use.
For instance, let’s say you’re planning a kitchen renovation as part of your business idea where you want to start a food blog or a ghost kitchen. In this case, you can claim a tax deduction as part of your home office expense.
The catch: Tax deduction in a remodeling project like this will be applicable if you use the space solely for business purposes.
Note: You will need a permit for kitchen remodel if the shift to a commercial kitchen involves wear and tear altering structural systems.
Is a kitchen remodel tax deductible on capital gains?
Another query that homeowners often have is whether or not is kitchen renovation tax deductible.
The short answer is yes, it is.
Nevertheless it is not so straight. That’s because you’ll only qualify for a capital gains tax reduction if your remodeling project increases your home’s cost basis.
In simple words, if the kitchen remodel increases the overall value of your property, you can seek tax benefits on capital gains. And these benefits can go up to thousands of dollars if not more.
Here’s an example about how kitchen renovation tax deduction for capital gains work:
Let’s assume that the original purchase cost of your home is $300,000 and that you’ve spent around $75,000 on kitchen remodel.
Here, the new cost basis of your home will be $300,000 + $75,000 = $375,000.
So, if you now sell your home for $500,000, your taxable gain will be $500,000 – $375,000 = $125,000. However, had your cost basis had not changed, this taxable gain would be $200,000.
Sounds interesting, doesn’t it?
How to apply for kitchen renovation tax deduction?
So far in the blog, you already know which kitchen remodeling projects can save you taxes and to what extent.
But you might well be curious how you can avail these benefits. After all, filing for taxes and seeking these exemptions can be super challenging and confusing.
And that’s exactly why I’ve broken down the process into three simple steps which include:
Step 1: Start out by keeping detailed records
Simple as it might seem, maintaining a record of all your kitchen renovation expenses is also the most important step to claiming tax deductions.
When we talk about record keeping, homeowners usually think they need just bills of major purchases.
Nonetheless, it is essential you keep everything from bills and receipts to invoices from your remodeling contractor to permits you obtained, and more. And this is especially true if you want to avail medical deductions or federal credits for energy efficiency.
Step 2: Use the right IRS forms for deduction claims
Next up, you’ll need to make sure that you’re using the correct IRS forms for claiming tax benefits. And this is where it gets complicated for a lot of people given the tax law jargon.
However, for the two most important deductions, namely energy efficiency and medical renovation, here are the IRS forms that you’ll need:
- IRS form 5695: If you’ve carried out an energy efficiency upgrade and your kitchen now meets the Energy Star requirements for tax credits, you’ll need to fill IRS form 5695 to avail the same.
- IRS form 1040: If you’ve renovated your kitchen for medical purposes like wheelchair access, you can claim tax deductions under IRS Schedule A by filling up form 1040.
Step 3: Consult a tax professional
No matter how much you research upon, tax laws will still seem complex, especially for kitchen renovation deductions.
As such, I suggest you consult a tax expert and get a full picture of the deductions you are eligible for.
Moreover, tax professionals can also help you take advantage of state-specific tax benefits for extra savings.
Frequently asked questions
Is a kitchen remodel tax deductible for apartments?
Yes, it is!
All home kitchen renovations are tax deductible, including small kitchen remodel in apartments, if you qualify the three criterias that I earlier listed, namely:
- Energy efficiency upgrades
- Medical upgrades
- Remodeling for business
Do new kitchen appliances qualify for tax benefits?
Yes, new kitchen appliances qualify for federal tax benefits, but only if they are Energy Star rated.
For instance, if you buy new kitchen appliances but they lack the required Energy Star rating, you won’t be able to claim tax benefits. So, it is essential you check that your appliances have the required rating.
Can you deduct labor costs for kitchen remodel?
Although labor costs for kitchen improvement qualify as capital improvement, they might not be tax deductible immediately.
However, labor costs for energy-efficient installations might still qualify for tax credits.
Conclusion
By now, you’ve got a clear answer to whether or not is a kitchen remodel tax deductible.
Moreover, you also know in detail how you can claim benefits in situations like energy efficiency upgrades, medical renovations, or increasing the property’s cost basis.
Got more questions about tax deductions or looking to undertake a kitchen upgrade for the same?
You can get in touch with us!
At Creative Design Ceramic and Tile, we are seasoned a Long Island remodeling contractor firm with over 38 years of kitchen remodeling expertise. And we’ve got affordable solutions to all your kitchen renovation needs.