by Solomon Poretsky
A certain portion of the costs of home upgrades may be tax deductible.
Interest for Upgrades
One way to squeeze a certain amount of tax savings out of upgrades is to pay for them with a home equity loan or second mortgage instead of using your credit card or other types of financing. Just as you can deduct your home mortgage interest, you also can deduct the interest you pay on cash-out refinances, second mortgages or home equity loans that you use to pay for repairs or upgrades to your home.
Upgrades for Home Offices
If your upgrade could be classified as a repair and you have a home office, you can write off the proportional share of the cost as a home-office expense. While adding a kitchen or addition is an upgrade, spending $600 to replace a broken light fixture with a newer,
nicer one could be called a repair. If 200 square feet of your 2,000-square-foot home is a home office, you can write off $60, or 10 percent, of the cost of the repair with your home-office deduction. If your upgrade is a legitimate one, you can depreciate a proportional share of the cost of the upgrade with your home-office depreciation allowance.
Writing Off Upgrades at Sale
While you can't write off upgrades to your house, you can add them to the cost basis of your home that you use to compute the cost basis for capital gains. If you bought your house for $100,000 15 years ago and make $90,000 in upgrades, your new cost basis is $190,000. When you sell your home, you subtract that cost basis from your net sales price to calculate if you have to pay any capital gains tax on the sale.
Upgrades and Investment Homes