Daperis CPATax Tips for Homeowners
Owning a home comes with four tax questions almost every owner eventually runs into: Is that renovation deductible? How much of your real estate tax actually reduces your bill? What happens when you sell? What changes if you rent out a spare room? None of these are too complicated once you see the mechanics. Here's how each one actually works.
Renovation or Repair? It Changes Everything
Repairs keep your home in normal working condition, think fixing a leaky faucet, patching drywall, or repainting. On a primary residence, none of these routine expenses are deductible, and they do not add to your home's cost basis.
Capital improvements, on the other hand, get capitalized into your basis rather than deducted in the year you pay for them:
The IRS standard. An expense counts as a capital improvement if it betters the property, restores it to like-new condition, or adapts it to a new use.
Repairs vs. improvements. Replacing a single broken window pane is a repair. Replacing every window in the house is an improvement.
Examples. A new roof, a kitchen renovation, a finished basement, or installing central air where none existed before.
While you don't get an immediate tax deduction for improvements, increasing your cost basis reduces your taxable gain when you eventually sell.
Why You Must Track Every Improvement Record
When you sell your primary residence, you can exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly, provided you owned and lived in the home for at least two of the five years preceding the sale.
While that exclusion covers the full gain for many homeowners, high-appreciation markets and long-held homes can easily push profit past those limits. Every tracked capital improvement adds directly to your starting purchase price, raising your total cost basis. A higher basis lowers your taxable gain, making it far more likely that your profit falls completely within the exclusion. Homeowners who discard renovation receipts often end up paying tax on gains they could have legally shielded.
Real Estate Taxes on Schedule A
The State and Local Tax (SALT) deduction cap is far more generous for 2026. For years, total SALT deductions, including real estate taxes, were capped at $10,000 regardless of how much you paid. For 2026, that cap rises to $40,400 for most filers. If you pay $25,000 or $30,000 annually between local property tax and state income tax, a meaningful chunk is deductible again.
The higher cap begins phasing out once your modified adjusted gross income (MAGI) exceeds $505,000 for 2026, reducing by 30% of the amount over that threshold. However, it does not disappear entirely: every filer retains a guaranteed floor of at least $10,000. Even if your income is comfortably above that threshold, run the actual numbers rather than assuming the higher cap doesn't apply to you.
Renting Out a Spare Room or Unit
If you rent out part of your primary residence on a long-term basis (where the average stay exceeds 30 days), you report the income on Schedule E of your tax return and deduct a proportional share of your home expenses:
Allocate expenses by square footage. If the rental space makes up 15% of your home's total living area, 15% of your mortgage interest, real estate taxes, insurance, utilities, and shared repairs become rental deductions rather than personal expenses. The remaining 85% stays personal.
Depreciate the rental portion. Because you are renting out part of the structure, you generally depreciate that percentage of the home's value over time, creating an additional deduction against rental income.
Plan for the future tax impact. Gain attributable to depreciation you claimed while renting does not qualify for the home sale exclusion. When you sell, that portion is taxed separately at a rate up to 25%. Claiming depreciation is still usually worthwhile, but remember that it isn't entirely "free money."
Keep It Simple / Key Takeaway 🍕
Save every renovation receipt like a lottery ticket, take advantage of the expanded real estate tax caps, and keep your square-footage calculations clean from day one if you rent out space. These tax rules are closely interconnected, and keeping organized records today ensures you keep more of your profit when you sell.
See how the home sale exclusion actually played out for one client selling a New York home and moving to Florida.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.