Is Your Home Remodel Tax-Deductible in San Diego?

Remodeling a home in San Diego can be both exciting and overwhelming. Perhaps you’re contemplating adding an extra room, giving your kitchen a modern makeover, or adapting your home for improved accessibility. Regardless of your plans, you might wonder if any of these costs are tax-deductible. While standard home remodels typically aren’t deductible in the same year you incur the expense, there are ways they can affect your taxes—especially when it comes time to sell your home.

At Kaminskiy Design and Remodeling, we’ve spent years helping homeowners bring their dream spaces to life. To help you navigate potential tax implications, we’ve compiled this guide covering common scenarios and tips you should know before, during, or after your remodel.

Note: This blog provides general tax guidance. Always consult a qualified tax professional for personalized advice.

Prefer Listening? Here’s the Podcast Version:

---

Key Takeaways

Thinking about a home remodel but worried about the cost? Some renovations could actually lower your tax bill! While not all projects qualify for deductions, certain upgrades—like energy-efficient improvements, medical necessity modifications, and home office renovations—may offer valuable tax benefits.

Understanding which remodels impact your taxes can help you make smarter financial decisions and even boost your home’s resale value. Keep reading to discover which renovations might save you money and how to maximize your investment!

---

1. Standard Remodels vs. Capital Improvements

What is a Capital Improvement?

A capital improvement is a project that significantly adds value to your home, prolongs its useful life, or adapts it for a new use. Examples include:¹

• Building an additional bathroom or bedroom.
• Installing new HVAC or plumbing systems.
• Replacing the roof.
• Renovating a kitchen with high-quality, long-lasting features.

Why It Matters

• Not Immediately Deductible: In most cases, you can’t deduct the cost of a capital improvement on your tax return the same year you pay for it.
• Increases Your Cost Basis: By adding these improvements to your cost basis, you can potentially reduce the capital gains taxes you owe when you eventually sell your home. Your capital gain is generally calculated by subtracting your adjusted cost basis from your home’s sale price.

Tip: Keep a dedicated folder (physical or digital) for receipts, invoices, and work orders related to your remodel. Clear documentation of these expenses is crucial for accurate cost-basis calculations later.

---

2. Medical Necessity Renovations

If you’re installing ramps, widening doorways, or making other accessibility updates for medical reasons, some or all of these costs might be deductible as medical expenses.² However, there are a few key considerations:

• Medical Justification: These expenses typically need to be prescribed by a healthcare provider to qualify.
• Non-Value-Adding Requirement: If the improvement also increases your home’s overall market value, only the portion that does not add value may be deductible.
• AGI Thresholds: You can only claim medical expenses that exceed a certain percentage of your Adjusted Gross Income (AGI). Both federal and California rules come into play, so you’ll need to follow the most current guidelines.

Example: Installing a wheelchair ramp may qualify for a deduction, but adding an elevator that significantly raises property value may not.

Eligibility depends on IRS rules, so it’s best to consult a tax professional for the latest guidance.

---

3. Home Office Deductions

More San Diego homeowners are working remotely or running businesses from home. If a portion of your remodel is strictly for a home office space that you use exclusively and regularly for business, you may be able to:

• Deduct a percentage of remodeling costs, like upgrading electrical wiring or adding custom cabinetry, if those features are solely for the office.
• Claim a portion of utilities and home maintenance expenses proportionate to the office’s square footage relative to the entire home.

Important Note: The IRS has strict guidelines for home office deductions. The space must be used exclusively for business—and not double as a guest room or family entertainment area.

Be Cautious: Misusing the home office deduction is a common IRS audit trigger. Keep clear records of expenses and usage.

---

4. Energy-Efficient Upgrades

Suppose your remodeling project includes installing solar panels, energy-efficient windows, or upgrading to an eco-friendly heating and cooling system. In that case, you may qualify for federal tax credits (different from deductions). Credits reduce your tax bill dollar-for-dollar.³

California residents may also find additional incentives, rebates, or utility credits—making these upgrades both environmentally friendly and cost-efficient in the long run.⁴

California Incentives: Local rebates may be available—Check with San Diego Gas & Electric (SDG&E) or a local tax expert to see how much you can save.⁵

---

5. Rental or Investment Properties

For those who own a rental property in San Diego, certain remodeling costs could be categorized as either repairs or capital improvements:

• Repairs (Deductible in the Same Year): Fixing a leaky faucet or replacing a broken window might be deductible in the year the expense is incurred.
• Capital Improvements (Depreciated Over Time): Larger projects, like installing a new roof or upgrading the plumbing, typically need to be depreciated over the property’s useful life.

Tip: Proper classification is essential to maximize deductions and avoid penalties—a tax professional can help ensure accuracy.

---

6. Accessory Dwelling Units (ADUs): Tax Considerations and Custom Accessibility Solutions

Accessory Dwelling Units (ADUs) are becoming increasingly popular in San Diego as a versatile solution for additional living space, rental income, or multigenerational living. When it comes to taxes, the deductibility of ADU-related expenses depends on how the unit is used:

• Personal Use: If the ADU is built for personal use (such as a guest house or extra family space), the costs are typically treated as a capital improvement. That means the expense isn’t immediately deductible; however, it increases your home’s cost basis, which can lower your capital gains tax when you sell.
• Rental or Business Use: If you convert the ADU into a rental property or use it for business purposes, you can generally depreciate the cost of the ADU over its useful life. Additionally, you may be able to deduct operating expenses, maintenance, and repairs related to the rental activity.

Enhanced Accessibility Features:

Many San Diego homeowners opt to include custom accessibility updates in their ADU designs—such as bathrooms with mobility enhancements like grab bars, curbless showers, wheelchair-accessible sinks, specialized fixtures, or even mobility lifts and stair/elevator solutions. When these features are medically necessary, they might also qualify for deductions as part of medical necessity renovations.

Why It Matters:

Investing in a custom ADU not only adds value and flexibility to your property but can also offer tax benefits over time. Kaminskiy Design and Remodeling specializes in designing and building custom ADUs that integrate both functional living space and specialized accessibility features. Whether you’re looking to generate rental income, accommodate multigenerational living, or ensure your home is accessible for a loved one, our team is here to guide you through every step of the process.

Looking to build a custom ADU? Kaminskiy Design & Remodeling offers expert ADU designs with accessibility features that fit your needs.

---

7. Record-Keeping and Organization

No matter which scenario applies to you, documentation is key. Create an organized system to store:

• Contracts and invoices from your remodeling team or contractors.
• Proof of payment (e.g., canceled checks, credit card statements).
• Before-and-after photos to demonstrate the scope of the work.
• Any relevant medical documentation if you’re claiming medical necessity.
• Home office floor plans or sketches include a dedicated workspace if part of the remodel.

Having comprehensive records will make the tax reporting process more straightforward, whether during an IRS audit or simply calculating your adjusted cost basis when you sell your home.

Tip: Store records for at least seven years in case of IRS audits.

---

8. Consult a Local Tax Specialist

While the information here provides a helpful overview, it’s always best to consult with a licensed tax professional who can address your specific circumstances. Tax laws change regularly, and federal, state, and local rules may each have unique stipulations.

A San Diego-based tax advisor or CPA familiar with California’s regulations is your best resource to ensure you take advantage of any available benefits.

---

9. How Kaminskiy Design and Remodeling Can Help

At Kaminskiy Design and Remodeling, we’ve guided countless San Diego homeowners through the remodeling process—from initial concepts to finishing touches. While we’re not tax experts, we do:

• Ensure Quality Work: Our expert designers and builders provide top-tier craftsmanship so your upgrades stand the test of time. That often translates to higher property value—a win for your future capital gains calculations.
• Keep Detailed Documentation: We work with you to ensure you have detailed invoices and contracts that may come in handy if a tax scenario applies.
• Offer Expert Guidance on Energy Efficiency and Accessibility: If you’re interested in eco-friendly or accessible design, our team can suggest solutions that align with potential tax benefits.

---

Final Thoughts

A home remodel is more than just a fresh coat of paint or a new layout—it’s an investment in your property’s long-term value and enjoyment. While many remodeling expenses aren’t immediately tax-deductible, certain improvements, especially those that qualify as capital improvements, medically necessary renovations, or energy-efficient upgrades, may offer tax advantages down the road.

If you’re thinking about a remodel or are already in the middle of one, Kaminskiy Design and Remodeling is here to guide you every step of the way. We believe in creating spaces that help you love where you live—even more so when financial benefits might be tied to your upgrades. For any tax-specific questions, remember to contact a local CPA or tax attorney who can tailor advice to your unique situation.

Disclaimer: This blog provides general information about potential tax considerations related to home remodeling and is not intended to serve as tax or legal advice. Tax laws can change, and individual circumstances vary. Always consult with a qualified tax professional for personalized guidance.

---

Frequently Asked Questions

Are home renovations tax-deductible in San Diego?

Most home renovations are not immediately tax-deductible, but certain improvements, like capital improvements, energy-efficient upgrades, and medical necessity renovations, may provide tax benefits in the long run, such as reducing capital gains taxes when you sell.

What qualifies as a capital improvement for tax purposes?

A capital improvement is a major upgrade that adds value, extends the home’s life, or adapts it for a new use. Examples include room additions, new roofs, HVAC systems, and major kitchen renovations. These expenses aren’t deductible upfront, but they increase your home’s cost basis, potentially lowering your capital gains tax when selling.

Can I deduct home office renovations from my taxes?

Yes, home office renovations may be deductible if the space is used exclusively and regularly for business. You may be able to deduct a percentage of remodeling costs, utilities, and maintenance based on the size of your home office compared to your total home size. However, the IRS has strict rules, so consult a tax professional.

Do energy-efficient upgrades qualify for tax credits?

Yes! Homeowners may be eligible for federal tax credits for installing solar panels (30% credit), energy-efficient windows (up to $600), heat pumps (up to $2,000), and insulation (up to $1,200). Additional California state incentives may also apply. Check with San Diego Gas & Electric (SDG&E) for local rebates.

Are ADU (Accessory Dwelling Unit) construction costs tax-deductible?

It depends on how the ADU is used. If the ADU is for personal use, the cost is not deductible but increases the cost basis, which can lower capital gains tax when selling. If the ADU is used for rental or business purposes, you may be able to depreciate the ADU over time and deduct operating expenses.

What remodeling expenses can rental property owners deduct?

Rental property owners can deduct repair costs (like fixing leaks or replacing a broken window) immediately. Larger upgrades, such as a new roof or plumbing system, must be depreciated over time. Proper tax classification is essential—consult a tax professional to ensure compliance.

---

Resources:

1. https://www.irs.gov/forms-pubs/about-publication-523 ↩︎
2. https://www.irs.gov/publications/p502 ↩︎
3. https://www.energystar.gov/ ↩︎
4. https://programs.dsireusa.org/system/program/ca ↩︎
5. https://www.sdge.com/residential/pay-bill/get-payment-bill-assistance/assistance-programs/no-cost-energy-efficient-home-improvements ↩︎