What Home Improvement Tax Breaks Are Set to Expire and Which Remain in Effect?

If you’re thinking about making upgrades to your home, you may have an opportunity to claim valuable tax breaks. While not every improvement qualifies, there are a few exceptions, such as capital improvements or repairs for a rental property, medical modifications, or home office tax breaks. You can also earn tax credits for energy-efficiency projects, though the window to claim them closes at the end of the year.

What Tax Breaks are Expiring?

Under the One Big Beautiful Bill Act (OBBBA), passed on July 4, 2025, several key residential energy credits are set to expire on Dec. 31, 2025.
The first credit is the Residential Clean Energy Credit. It allows taxpayers to claim up to 30 percent of the cost of qualifying clean-energy systems, including:

• Solar panels and solar water heaters
• Wind turbines
• Geothermal heat pumps
• Battery storage technology
• Fuel cells

It also includes the cost of installation and labor and has no annual dollar cap for most projects.

Complimenting that program, the Energy Efficient Home Improvement Credit focuses on smaller-scale upgrades and carries a maximum annual credit of $3,200, split into two parts, including the following benefits:

Up to $1,200 per year for qualifying energy-efficient upgrades such as

• • Exterior doors (up to $250 per door, $500 total)
  • Windows and skylights (up to $600 total)
  • Central air conditioners
  • Water heaters
  • Hot water boilers
  • Furnaces
  • Insulation
  • Home energy audits (up to $150 total)

• An additional $2,000 per year for the following:
  
  • Heat pumps
  • Heat pump water heaters
  • Biomass stoves or boilers

Of note, the abovementioned systems qualify for this credit during the year in which the property is put into service, not just purchased. Also, most of these upgrades only apply to primary residences; although, there is limited eligibility for second homes and renters who use the property as their primary residence.

Which Tax Breaks Remain in Effect?

Capital Improvements

Capital improvements are another way to save on taxes. They’re not immediately deductible, but they can lower capital gains taxes when you sell by adding the cost of the qualifying improvements to the property’s basis. However, if your gain is already sheltered by the home sale exclusion, the improvements might not provide additional savings above that amount.

The home sale exclusion is $250,000 for individuals and $500,000 married filing jointly.

Despite the rising cost of housing over the years, this amount has not been adjusted for inflation since 1997.

To meet the IRS’s definition of a capital improvement, the project needs to add substantial value, extend the useful life of the property, and be a permanent improvement rather than temporary.

The approved projects may include:

• Adding or remodeling a room or a garage
• Installing a new roof or HVAC system
• Improving curb appeal with new landscaping or a swimming pool
• Upgrading insulation or plumbing systems

For a more comprehensive list, the IRS provides additional examples of qualifying improvements and guidance related to selling your home. 

Rental Property Improvements

For rental property owners, the rules on claiming deductions work a bit differently. The biggest distinction that needs to be made is between repairs and improvements. Repairs are considered standard maintenance and can be fully and immediately deducted in the year the expense is incurred. Common repairs may include painting the interior or exterior of the property, fixing electrical or plumbing systems, or repairing appliances.

On the other hand, major structural improvements to rental properties must be capitalized and depreciated over a 27.5-year period. For example, renovating a kitchen or bathroom, replacing the roof, or adding an addition would be considered major improvements that extend the useful life of the property and add value to its cost basis. In many cases though, specific components of a project could qualify for immediate write-offs under bonus depreciation.

For shorter-lived assets under 20 years, the OBBBA restored and made permanent 100 percent bonus depreciation for qualifying assets acquired and placed in service after Jan. 19, 2025. This means that rental property owners can now deduct the full cost of items in the year placed in service rather than depreciating them over time, including:

• Appliances, cabinets, and fixtures
• Carpets and flooring
• Furniture
• Fencing, landscaping, and sidewalks

Rental property owners who finance improvements may also see more favorable treatment for certain interest expenses under the OBBBA’s revised Section 163(j) rules.

Medical Improvements

Homeowners who make improvements for medical reasons may be eligible to deduct those costs as a medical expense. Installing a wheelchair ramp, widening doorways, or adding handrails throughout a home, for example, are modifications that can qualify.

Although, it’s important to note that to qualify, the total of all medical expenses needs to exceed 7.5 percent of adjusted gross income (AGI), and the homeowner must itemize to claim the benefit. So, for example, if a homeowner earns $100,000 AGI, only medical expenses above $7,500 would qualify for a deduction.

Home Office Improvements

With more people working from home, home office deductions have received a lot of attention in recent years. Generally speaking, this deduction applies to business owners and self-employed individuals who use part of their home exclusively and regularly for business purposes. Unfortunately, it does not extend to W-2 employees who work remote, even if it’s a full-time position.

For those who qualify, improvements and repairs follow the same rules as noted earlier for rental properties. Routine repairs can be deducted in the year occurred, while major improvements need to be capitalized and depreciated over time; however, bonus depreciation could be used for certain qualifying assets used within the office, such as furniture, fixtures, or equipment, and immediately deducted in the year placed in service.  

Next Steps

Over the last 10 years, spending on home improvements and repairs grew by 82 percent. Projections show that while markets may soften, year-over-year spending will increase by 1.2 percent in early 2026.

With all energy-efficiency tax breaks set to expire and other incentives, such as 100 percent bonus depreciation, made permanent under the OBBBA, it’s important to consider the timing of home improvements to take advantage of available deductions. Strategic planning can help determine which upgrades qualify for immediate benefits, which add to your property’s cost basis, and how to align these tax opportunities with your broader financial picture.

For more information on your specific situation, please contact your R&A advisor.