Can I Write Off Home Renovations on My Taxes? (2026 Guide)

Important: This is general information, not tax advice. Consult a qualified CPA or tax professional for your specific situation. Tax laws change frequently, and individual circumstances vary.

The Short Answer: It Depends on the Type of Renovation

If you are planning a home renovation in the Bay Area, one of the first questions you will likely ask is whether you can write it off on your taxes. The answer is not a simple yes or no.

Most home renovations cannot be deducted directly from your income taxes in the year you complete them. However, several categories of home improvements offer real tax benefits, either now or when you eventually sell your home. Understanding the difference between these categories can save you thousands of dollars.

This guide covers the five main ways home renovations interact with your taxes in 2026: capital improvements, energy efficiency credits, home office deductions, selling your home, and ADU or rental income deductions.

Capital Improvements vs. Repairs: The Key Distinction

The IRS draws a firm line between repairs and capital improvements, and the distinction matters for your taxes.

Repairs maintain your home in its existing condition. Fixing a broken window, patching a roof leak, repainting a room, or replacing a faucet are all repairs. These are not tax deductible for your primary residence.

Capital improvements add value to your home, extend its useful life, or adapt it to a new use. The IRS requires that a capital improvement be durable or permanent and last at least one year. Examples include:

• Kitchen or bathroom remodels
• Room additions and home expansions
• New roofing or siding
• HVAC system replacement
• New electrical or plumbing systems
• Adding a deck, patio, or permanent landscaping
• Finishing a basement
• Building an ADU

Capital improvements do not give you an immediate tax deduction. Instead, they increase your home’s cost basis, which reduces your taxable capital gains when you sell. More on that below.

What to Document

Keep every receipt, contract, invoice, and bank statement related to capital improvements. You may not need them for years, but when you sell your home, this documentation is essential for proving your adjusted cost basis. The IRS can request proof, and missing records mean missing deductions.

Energy Efficiency Tax Credits: What Changed in 2026

For several years, two federal programs offered significant tax credits for energy-efficient home upgrades. Both have now expired, but understanding them matters if you completed work in 2025.

Section 25C: Energy Efficient Home Improvement Credit

This credit covered 30% of project costs (including installation) for qualifying energy-efficient upgrades, up to $3,200 per year. Eligible improvements included:

• Heat pumps and heat pump water heaters
• Insulation and air sealing
• Energy-efficient exterior windows and doors
• Certain HVAC systems
• Professional home energy audits (up to $150 credit)

Section 25C expired on December 31, 2025. If you completed qualifying upgrades before that date, you can claim the credit on your 2025 tax return, which you file in 2026. The key requirement is that the improvement must have been “placed in service” (fully installed and operational) by the deadline. Paying for or signing a contract before December 31 is not sufficient; the installation must have been complete.

Section 25D: Residential Clean Energy Credit

This credit provided a 30% credit for renewable energy systems, including solar panels, solar water heaters, geothermal heat pumps, and battery storage. Like 25C, this credit expired at the end of 2025.

What This Means for 2026 Renovations

As of early 2026, no federal energy efficiency tax credits are available for new home improvement projects. Congress could enact new legislation, but nothing is currently in effect. If you are considering energy-efficient upgrades, the decision should be based on long-term utility savings and comfort, not tax incentives. Your CPA can advise you on any state-level programs that may still be active in California.

Home Office Deductions

If you are self-employed and use a portion of your home exclusively and regularly as your primary place of business, you may qualify for the home office deduction. This is one of the few ways to get a current-year tax benefit from home improvements.

Important limitation: The Tax Cuts and Jobs Act (TCJA) eliminated the home office deduction for W-2 employees. Only self-employed individuals, freelancers, and independent contractors qualify.

How It Works for Home Improvements

Home office deductions apply to improvements in two ways:

1. Office-only improvements are 100% deductible. If you hire a contractor to install built-in shelving, improved lighting, or soundproofing in your dedicated home office, the full cost is a deductible business expense.

2. Whole-home improvements are partially deductible based on the percentage of your home used as office space. If your home office occupies 10% of your home’s total square footage, you can deduct 10% of the cost of a new HVAC system, roof replacement, or other whole-home capital improvements.

Calculating Your Deduction

You have two methods:

• Actual expense method: Calculate the exact percentage of your home used for business, then deduct that percentage of qualifying expenses (mortgage interest, utilities, insurance, repairs, and depreciation).
• Simplified method: Deduct $5 per square foot of dedicated office space, up to 300 square feet ($1,500 maximum).

The actual expense method requires more recordkeeping but typically yields a larger deduction, especially if you have made significant improvements. Discuss both options with your CPA to determine which is better for your situation.

Selling Your Home: How Renovations Reduce Capital Gains

For most homeowners, this is where renovations deliver their biggest tax benefit. When you sell your home, capital improvements increase your adjusted cost basis, which directly reduces your taxable capital gain.

The Math

Your capital gain equals your sale price minus your adjusted basis. Your adjusted basis is your original purchase price plus the cost of all qualifying capital improvements, minus any depreciation claimed.

Example for a Bay Area homeowner:

Item	Amount
Original purchase price	$1,200,000
Kitchen remodel	$150,000
Bathroom remodels (2)	$80,000
New roof	$35,000
ADU construction	$300,000
Adjusted basis	$1,765,000
Sale price	$2,500,000
Capital gain	$735,000

The $250K / $500K Exclusion

The IRS allows you to exclude up to $250,000 in capital gains if you are single, or $500,000 if you are married filing jointly, provided you lived in the home as your primary residence for at least two of the last five years before the sale.

In the example above, a married couple filing jointly would exclude $500,000 of the $735,000 gain, leaving only $235,000 subject to capital gains tax. Without the $265,000 in documented capital improvements, their taxable gain would have been $500,000 instead.

In the Bay Area, where home appreciation is significant, documenting every capital improvement can mean the difference between owing tens of thousands in capital gains taxes and owing nothing.

What Qualifies as a Capital Improvement for Cost Basis

The IRS provides guidance in Publication 523. Common qualifying improvements include:

• Additions (rooms, garages, decks, porches)
• Kitchen and bathroom remodels
• New roofing, siding, or windows
• HVAC, plumbing, or electrical system upgrades
• Landscaping and hardscaping (permanent installations)
• Accessibility modifications
• New flooring throughout the home

Routine maintenance, painting, and minor repairs do not qualify. When in doubt, ask your CPA whether a specific project counts as a capital improvement.

ADU and Rental Income Deductions

Building an ADU is one of the most tax-advantaged home improvement strategies available to Bay Area homeowners, provided you use it as a rental property.

Depreciation

When you rent out your ADU, the IRS treats it as a rental property. You can depreciate the cost of the structure (not the land) over 27.5 years. For a $300,000 ADU, that is approximately $10,900 per year in depreciation deductions against your rental income.

Depreciation begins the month the ADU becomes available for rent, even if it is temporarily vacant. You do not need an active tenant to start claiming depreciation.

Deductible Expenses

As a rental property, your ADU qualifies for a range of annual deductions:

• Repairs and maintenance: Plumbing fixes, appliance repairs, repainting, and general upkeep are fully deductible in the year they occur.
• Property management fees: If you hire a property manager, the fees are 100% deductible.
• Insurance: The portion of your homeowner’s insurance attributable to the ADU, or a separate landlord policy, is deductible.
• Utilities: If you pay utilities for the ADU, those costs are deductible.
• Property taxes: The portion of property taxes attributable to the ADU is deductible against rental income.

Capital Improvements to the ADU

Major upgrades to a rental ADU (new flooring, kitchen renovation, appliance replacement) must be depreciated over time rather than deducted immediately. Your CPA can help you determine the appropriate depreciation schedule for each improvement.

California Property Tax Protections

Under SB 1164, adding an ADU to your property does not trigger a full reassessment. The county assessor only assesses the ADU’s construction cost as an addition to your existing property tax bill. Your primary home maintains its original assessed value under Proposition 13.

This is a meaningful benefit for long-time Bay Area homeowners whose properties have appreciated well beyond their original purchase price.

Medically Necessary Renovations

One additional category worth mentioning: if you, your spouse, or a dependent requires home modifications for medical reasons, you may be able to deduct those costs as a medical expense.

Qualifying modifications include wheelchair ramps, widened doorways, grab bars, accessible bathroom fixtures, and stairlifts. The deductible amount is the cost of the modification minus any increase in your home’s value. For example, if a $10,000 wheelchair ramp adds $4,000 to your home’s value, you can deduct $6,000 as a medical expense, subject to the standard AGI threshold for medical deductions.

These deductions require a letter of medical necessity from a physician. Consult your CPA and your doctor before proceeding.

What Bay Area Homeowners Should Do Now

Tax planning should be part of every major renovation project. Here are the steps that will serve you well:

1. Keep meticulous records. Save every receipt, contract, and invoice for capital improvements. Digital copies stored in the cloud provide a reliable backup.
2. Consult your CPA before you start. A conversation with your tax professional before construction begins can help you structure the project for maximum tax benefit, especially for ADUs and home office spaces.
3. Separate repairs from improvements. When your contractor provides an estimate, ask for line-item breakdowns that distinguish between capital improvements and maintenance repairs. This clarity simplifies tax filing later.
4. Consider the ADU opportunity. If you are weighing a major renovation, an ADU offers both rental income and significant tax advantages that other home improvements do not provide.
5. Plan for the sale. Even if you are not planning to sell soon, every capital improvement you document today reduces your future tax liability.

Ready to Plan Your Next Renovation?

At Custom Home, we help Bay Area homeowners plan renovations that make financial sense from every angle, including tax impact. Our two-phase design-build process gives you a locked-in price and a clear scope of work before construction begins, which makes it easier to document capital improvements and plan your tax strategy with your CPA.

Whether you are considering a kitchen remodel, a whole-home renovation, or an ADU, we can help you understand the full picture.

Contact us to start planning your project.