Originally posted 10/22/2018, revised on 1/28/2021
Foundation repairs are tax deductible, in specific instances. As you would expect with our convoluted maze-like tax code, the devil is in the details.
Acculevel is a foundation company. We are experts in our field; since opening our doors in 1996, we’ve restored health and stability to more than 20,000 homes in our Midwestern service area. But we are not tax experts, and we’re not going to pretend otherwise. For this article, we leaned on the knowledge and skill set of Thieme & Adair CPAs.
After a detailed interview, we’ve acquired the answers homeowners like you are seeking. We’ll explain what the eligible criteria are, and what qualifies as a deductible expense.
Because tax laws are updated and revised on a regular basis, you should always verify your plans with a tax professional before banking on a juicy deduction.
Is it a Home Repair or a Home Improvement?
Your local home improvement store doesn’t care what you use its products for, but the IRS certainly does. You may think that making repairs to your home equals improving your home- that home repairs and home improvements are one and the same. But the IRS makes a distinction between the two.
In terms of tax deductions, a home repair is something done to maintain the health of the home. These repairs are important, but don’t make a large difference in terms of livability or resale value. These are things like fixing leaks in the roof, repairing a crack in the foundation, or installing gutter guards to block debris.
However, there are residential energy credits that you can qualify for, if the repairs reduce your home’s environmental impact. An example of this would be replacing fiberglass insulation in your crawl space with spray foam insulation. This could be considered both a repair and an improvement. Removing the failing fiberglass insulation eliminates a leading cause of sagging floor damage, while also reducing your home’s utility bills.
This photo was taken by an Acculevel project manager during a free estimate appointment. The crawl space has damp fiberglass insulation and the floor joists are beginning to mold.
Do You Have a Home Office?
There are a number of restrictions on home offices. You must be the business owner, the area being repaired must be used only for business, and the repairs need to improve the space. Let’s say you conduct your business from an office in your basement, and one of the walls develops a crack that leaks. The costs of repairing that crack is eligible, because it’s a repair to your office space.
If you want to establish a living space in your basement, you should consider installing an egress window. This will provide safety as well as home value. You can learn more in our homeowner’s guide for egress windows.
But please keep in mind that this does not apply to anyone who is not self-employed. If your boss allows you to work from home and you have a home office, this does not count. You may be able to deduct the costs of essential office equipment that you buy (computer, printer, etc), but not changes to the work space.
This photo was taken by an Acculevel team member, after encapsulating a crawl space. The dehumidifier is installed and routed to the sump pump.
Do You Rent to Others?
If you rent the basement apartment out of your home, or maintain a rental house, repairs to these are deductible if they qualify as improvements. If you finish the basement of a rental home to add living space? This is an improvement you can deduct. Likewise, if you encapsulate the crawl space to provide additional storage to your renters, or if you install a dehumidifier to improve the air quality for your renters. Some improvements to a rental unit have to be depreciated- this is another instance where you should seek advice from a professional CPA.
Are You Planning to Sell Your Home?
If you make repairs to your home, and these increase your profit on the sale of the home, this is a possible tax-free gain. A married couple can exclude up to $500K on the sale of a principal residence (or $250K for an individual). John Thieme explains:
Let’s say your home is worth $150,000 with a cracked foundation, and this is the maximum sale price you can earn. You decide to repair the foundation and spend $15,000 to do so. After the repair, your home is able to sell for $200,000. This additional $50,000 is a clear gain that you don’t have to pay taxes on. Essentially, you’ve spent $15K and saved yourself the cost of taxes on $50K.
What’s the Next Step?
If you have additional tax questions, we strongly recommend you contact a qualified and licensed CPA. You can use the website maintained by the National Association of State Boards of Accountancy (NASBA) to find a CPA in your area. Free and open to the public, CPAverify.org is the first ever single-source national database of licensed CPAs and CPA firms.
Please also check out our foundation repair guide. This was designed specifically to be a resource for homeowners. Please bookmark it and refer back to it any time you have questions about your home’s foundation.
If you would like to have someone evaluate your foundation and estimate the repair costs, please seek out an experienced and reputable contractor in your area. We encourage you to always use the Better Business Bureau for reference, to make sure the company you choose is insured and accredited by the BBB.