Key takeaways
What this article covers, in order:
- Energy credits: available for 2025, gone for 2026
- The home office: where improvements become deductible
- Medical improvements
- Basis: the deduction you collect when you sell
- Worked example: a 2025 project and a home office
- Common mistakes
Improvements to your own home are generally not tax deductible in the year you pay for them. They are personal costs. They can still save tax in four ways: through the home office deduction if you run a business from home, as a medical expense when the change is for a medical need, by adding to your home's cost basis when you sell, and through energy credits. The energy route has mostly closed: the energy efficient home improvement credit and the residential clean energy credit both ended for property placed in service after 31 December 2025.
If you installed qualifying energy property in 2025, you can still claim it on your 2025 return. For work done in 2026, the other three routes are what remains. Here is how each one works.
Energy credits: available for 2025, gone for 2026
Energy efficient home improvement credit (Form 5695, Part II)
For qualifying property placed in service from 2023 through 2025, this credit is 30% of eligible costs, subject to annual caps:
- $1,200 a year in total for items such as insulation, exterior doors, windows and skylights, central air conditioners, certain water heaters, furnaces and boilers, and electrical panel upgrades.
- Within that $1,200: exterior doors $250 each and $500 total, windows and skylights $600, a home energy audit $150, and $600 per item for other energy property.
- A separate $2,000 a year for electric or natural gas heat pumps, heat pump water heaters, and biomass stoves or boilers.
The credit is nonrefundable and cannot be carried forward. For 2025 property, the item must come from a qualified manufacturer and you must report the qualified manufacturer identification number (QMID) on the return. You claim it for the year the item is installed, not the year you paid a deposit.
Residential clean energy credit (Form 5695, Part I)
This credit is 30% of the cost of solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells and battery storage of at least 3 kWh, including installation labour, with no annual dollar cap. It is not available for property placed in service after 31 December 2025. Unlike the improvement credit, any unused amount carries forward to future years, so a 2025 installation can keep reducing your tax after the credit itself has ended.
What this means in practice
A project finished in 2025 qualifies. A project contracted in 2025 but installed in January 2026 does not. If you are reviewing a 2025 return, check the installation dates on your contractor's invoices.
The home office: where improvements become deductible
If you are self-employed and use part of your home regularly and exclusively for business, you can deduct a share of home costs on Schedule C. Employees generally cannot, because unreimbursed employee expenses are no longer deductible.
- Simplified method: $5 per square foot, up to 300 square feet, for a maximum of $1,500. No depreciation and no separate deduction for repairs or improvements.
- Regular method (Form 8829): actual costs. Costs that benefit only the office, such as painting that room, are direct expenses and fully deductible. Costs for the whole home, such as utilities, insurance and general repairs, are deducted at your business-use percentage. Improvements to the whole home, such as a new roof, are not deducted at once; the business share is depreciated along with the home.
The regular method also lets you carry forward amounts that exceed the business's gross income limit, which the simplified method does not.
Medical improvements
Changes made mainly for medical care can count as medical expenses on Schedule A. If an improvement raises your home's value, only the cost above the increase in value counts. Many accessibility changes add little or no value and can be counted in full, such as entrance ramps, widening doorways and hallways, grab bars, lowering cabinets, and modifying stairways. Medical expenses are deductible only to the extent they exceed 7.5% of your AGI, and only if you itemize, so this route mostly helps in a year with large medical costs.
Basis: the deduction you collect when you sell
Every capital improvement adds to your home's basis. When you sell, gain is the sale price minus basis and selling costs, so a higher basis means less gain. If you owned and lived in the home for at least two of the last five years, you can exclude up to $250,000 of gain, or $500,000 for most married couples filing jointly. Improvements matter most to people whose gain may exceed that exclusion, and to anyone who has used part of the home for business or rental.
Repairs and maintenance, such as fixing leaks or repainting, do not add to basis unless they were part of a larger remodel.
Worked example: a 2025 project and a home office
Ana is a self-employed product photographer in Albuquerque. Her home is 1,800 square feet and her studio room, used only for the business, is 180 square feet, or 10% of the home. In autumn 2025 she had the following installed and paid for:
- A ducted air-source heat pump: $9,000.
- New exterior windows meeting Energy Star Most Efficient requirements for the whole house: $3,000.
- A new roof: $14,000.
- Fresh paint and new lighting in the studio only: $1,200.
- Heat pump credit: 30% × $9,000 = $2,700, capped at $2,000.
- Windows credit: 30% × $3,000 = $900, capped at $600.
- Total energy improvement credit for 2025: $2,600, provided the items have QMIDs and were installed in 2025.
- Roof: a capital improvement to the whole home. Under the regular home office method, 10% of its cost is depreciated as part of the business share of the home. The full $14,000 adds to her basis.
- Studio paint and lighting: paint is a direct expense, deductible in full on Form 8829 under the regular method. New fixed lighting is an improvement to the office, so it is depreciated rather than deducted at once.
- Method choice: the simplified method would give 180 × $5 = $900 and nothing for the paint or the roof. With a mortgage, utilities, insurance and the direct expenses, the regular method gives her more, at the cost of more records and some depreciation recapture when she sells.
If Ana had scheduled the same heat pump and windows for March 2026, the $2,600 credit would not exist. The home office and basis treatment would be unchanged.
Common mistakes
- Claiming energy credits for 2026 installations. Both credits stop for property placed in service after 2025.
- Missing the QMID on 2025 property. Ask your installer for the qualified manufacturer's identification number.
- Treating a repair as an improvement, or the reverse. Repainting a room is a repair; adding a room is an improvement.
- Deducting a whole-house improvement through the home office in one year. Only direct office repairs are deducted at once; improvements are depreciated.
- Throwing away invoices. Basis claims made years later depend on receipts you kept.
- Assuming employees can use the home office deduction. They generally cannot for tax years after 2017.
hellobooks< / a > -helps">How HelloBooks helps
A home-based business needs two sets of records: what the business can deduct now, and what the house has cost over the years. In HelloBooks you can record studio repairs as expenses, add office improvements to the fixed assets register with straight-line depreciation, and attach each contractor invoice using document extraction, which pulls the vendor, date, amount and line items from a PDF or photo. Tracking by class lets you tag home-office costs separately from the rest of the business. When you sell, or when your CPA prepares Form 8829, the history is already in one place.
This is general information as of November 2026 and not tax or legal advice. Energy credit and home office rules have conditions not covered here, so check IRS Form 5695 and Form 8829 instructions or a qualified CPA.
