Cooking Up Ways to Deduct Your Kitchen Remodel on Taxes

If you're planning a kitchen remodel, you may be wondering if any of the costs can be deducted on your taxes. The answer depends on whether your kitchen is part of a personal residence or a rental property used to produce income.

Kitchen remodels can provide an invaluable boost to a home's functionality and value. But while upgrades like knocking down walls for an open concept or replacing cabinets and countertops can pay off when you sell, their costs are typically not deductible for a homeowner's primary residence.

When Kitchen Remodels Are Not Tax Deductible

Personal Residence Kitchen Remodels

Unfortunately, kitchen remodel costs for your main home where you live year-round are generally not considered tax deductible. The IRS does not permit taxpayers to claim deductions for expenses related to home improvements that are intended to increase a property's value.

This rule applies even if you operate a home business or office within your personal residence. The space needs to be used exclusively and regularly for business purposes to qualify for the home office deduction. Since kitchens are usually considered personal, living spaces, their remodels do not meet the IRS requirements for write-offs.

Kitchen Remodels Must Be Business-Related

For any home renovation costs to be deductible, the IRS requires they be related to operating a business or producing rental income. Since most homeowners use their kitchens for personal reasons, these upgrades are rarely deductible.

Expenses must also be considered ordinary and necessary for managing your business or rental property. A kitchen remodel geared more towards increasing home value versus facilitating business operations would not meet this standard.

Deducting Kitchen Remodels for Rental Properties

Depreciating Capital Improvements

If you own a rental property or vacation home you rent out, portions of a kitchen remodel may potentially be deductible. Costs for major upgrades like installing new cabinets, countertops, or appliances can often be depreciated over a period of years.

The same applies to structural changes like knocking down walls to create a more open layout. Since these types of substantial improvements add value and have long useful lives, the IRS categorizes them as capital improvements.

Capital improvements for rental properties can generally be depreciated over 27.5 years. This allows you to deduct a portion of the costs each year on your taxes based on the expected lifespan.

Deducting Repairs for Rentals

In addition to depreciation, rental property owners can also deduct expenses in the year paid for kitchen repair work. This includes fixing damage, general wear and tear issues, and other maintenance required to keep the kitchen in working order.

For smaller kitchen projects, determining whether costs should be treated as repairs versus capital improvements depends on looking at the remodel as a whole. Consult with a tax professional to ensure proper classification.

Be sure to keep excellent records, including invoices and receipts, to document the rental kitchen remodel costs you plan to deduct.

Maximizing Tax Deductions for Your Remodel

Kitchen Use for Business or Rentals

To maximize potential tax deductions, consider how you use the kitchen space. Operating it as an Airbnb, vacation rental, or catering business allows more write-off opportunities versus personal use.

Cost Segregation Study

A cost segregation study can also help identify components of the remodel that may qualify for faster depreciation. For example, appliances can often be depreciated over 5 years rather than 27.5. Cabinets and certain finishes may qualify for a 7-year schedule.

Bonus Depreciation

Under current tax law, bonus depreciation allows writing off 100% of capital improvement costs in the first year. But specific requirements apply, so consult a tax professional about your potential eligibility.

While a stunning kitchen revamp can provide joy for years to come, its tax deductibility depends on how the space is used. For most homeowners, upgrades to their primary residence kitchen do not qualify for write-offs.

But investors and business owners may potentially deduct portions of rental property or commercial kitchen remodels. Be sure to keep detailed records and consult a tax pro to maximize deductions while staying compliant.