Home Improvement Tax Deductions in 2026: What LA and Orange County Homeowners Should Know

By Asher Ben-Haim

Updated July 2026. The rules described below apply to the 2026 tax year.

Most home improvements are not tax deductible in the year you pay for them. That is the honest answer, and it surprises a lot of homeowners who assume a big remodel comes with a big write-off. A handful of specific situations do carry a real tax benefit, though, and the rules changed in a few important ways for the 2026 tax year. Which category your project falls into decides whether it saves you anything at tax time.

At Built to Perfection, we have spent 25 years building across Los Angeles and Orange County, and one habit shapes almost everything here: we document a project's scope and cost in writing before demolition starts. That same documentation gives a homeowner the paper trail they need at tax time. This guide walks through what actually reduces your tax bill in 2026, what quietly expired at the end of 2025, and how the improvements we build most often, like kitchens, additions, and ADUs, fit into the picture.

One thing up front. We are a licensed general contractor, not a CPA or tax advisor. Everything below is general information for the 2026 tax year, not tax advice. Tax rules turn on the details of your specific situation, so confirm anything here with a qualified tax professional before you file.

Tax deduction vs. tax credit: what's the difference?

People use these words interchangeably, but they work differently, and the difference is money.

A deduction lowers your taxable income. Its value depends on your tax bracket. A $10,000 deduction saves roughly $2,200 for someone in the 22% bracket, not the full $10,000.

A credit lowers your tax bill dollar for dollar. A $1,000 credit cuts what you owe by a full $1,000, regardless of your bracket. Credits are more valuable per dollar, which is exactly why the expired energy credits mattered so much.

There is one more piece of context that decides whether most of the deductions below help you at all: the standard deduction. For 2026, it is $16,100 for single filers and $32,200 for married couples filing jointly, per the IRS inflation adjustments for tax year 2026. Most homeowners take the standard deduction rather than itemizing. If you take it, the itemized home-related deductions in this guide (mortgage and HELOC interest, medical-necessity improvements) give you no extra benefit unless your itemized total climbs past that bar.

What happened to the home energy tax credits in 2026

This is the biggest change, and it is where most older articles are now flat wrong. For years, homeowners chased two federal residential energy credits. Both ended.

The Energy Efficient Home Improvement Credit (Section 25C) covered insulation, exterior windows and doors, HVAC, and home energy audits, worth up to $3,200 a year.

The Residential Clean Energy Credit (Section 25D) was the 30% credit for solar, battery storage, geothermal, and similar systems.

Under the tax law signed in July 2025, both credits ended for any property placed in service after December 31, 2025. That is years earlier than they were originally set to expire. In plain terms, the old "get 30% back on solar" pitch no longer applies to any 2026 installation. The IRS is explicit that neither credit applies to expenditures made after the end of 2025.

What can still be claimed: if your qualifying project was completed and placed in service on or before December 31, 2025, you can still claim it on your 2025 return, filed in early 2026, using IRS Form 5695. Signing a contract or paying a deposit in 2025 for a 2026 installation does not count. The work had to be finished.

If you were counting on a federal energy credit for a 2026 project, look instead at state, local, and utility rebate programs, which are separate from the federal credits and may still exist. California also has its own solar property tax rule, covered further down. To be clear, solar is not something we install. We are including it here only because it is one of the improvement categories homeowners ask about at tax time.

Repairs vs. improvements: which ones matter for taxes?

The IRS draws a sharp line between a repair and an improvement, and only one side of that line helps you.

A repair keeps your home in good working condition. Fixing a leak, patching drywall, or repainting a room does not change your tax picture on a primary residence.

An improvement adds value, extends the home's useful life, or adapts it to a new use. Improvements get added to your home's cost basis, which we explain next.

There is a useful wrinkle here. When repairs are done as part of a larger remodel, the whole job counts as an improvement. Per IRS Publication 523, replacing one windowpane is a repair, but replacing every window as part of a full renovation is an improvement. This matters a lot for whole-home remodels and fire rebuilds, where dozens of small tasks roll up into one capital improvement.

How home improvements lower your taxes through cost basis

This is the main way the work we do touches your taxes, so it gets the most attention here.

Your home's cost basis starts as what you paid for it. Every qualifying improvement you make gets added on top, giving you an adjusted basis. When you sell, your taxable gain is the sale price minus that adjusted basis. A higher basis means a smaller taxable gain.

The improvements that raise your basis are usually the same ones that raise what your home sells for, which we cover in our guide on how to increase the price of your home.

Here is why that matters in a market like ours. When you sell a primary residence, the Section 121 exclusion lets you exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly, as long as you owned and lived in the home for at least two of the last five years. In much of LA and Orange County, long-time owners can blow past even the $500,000 exclusion. That is exactly when tracked improvements start to save you real money.

A simple example, using round numbers:

Without the $150,000 in documented improvements, the taxable gain would have been $200,000 instead of $50,000. Gain above the exclusion is taxed at long-term capital gains rates, and high earners may also owe an extra 3.8% net investment income tax on the excess. The lesson is simple: the kitchen remodels,home additions, ADUs, and whole-home remodels that raise your basis only pay off at sale if you kept the records to prove them.

That is where our process helps. Before demo day, we put the full scope and cost of the project in writing. Years later, when you sell and your tax preparer asks what you spent, that documentation is already sitting in your file. Keep every invoice and contract. The IRS can ask about the basis long after the work is done.

Medical-necessity home improvements

Home improvements made mainly for medical care can count as a deductible medical expense, which makes this relevant for aging-in-place and multi-generational households that remodel for a parent or adult child.

The catch is how the number gets calculated. Per IRS Publication 502, the deductible amount is the cost of the improvement minus any increase in your home's value. If a $40,000 accessible bathroom raises your home's value by $25,000, only $15,000 counts as a medical expense. Some modifications are presumed not to add value at all, so they can be fully counted, including:

• Widening doorways and hallways

• Building entrance or exit ramps

• Installing grab bars and handrails

• Lowering or modifying kitchen cabinets

• Adjusting outlets and plumbing for accessibility

  
  

Two more limits apply. You have to itemize, and you can only deduct total medical expenses above 7.5% of your adjusted gross income. Between the value offset, the 7.5% floor, and the itemizing requirement, many homeowners end up with a small deduction or none. It is worth running the math with a tax professional before assuming an accessibility remodel is deductible.

The home office deduction

The home office deduction is available to the self-employed, not to W-2 employees. If you work from home for an employer and receive a W-2, you generally cannot claim it in 2026. That suspension, which started in 2018, was made permanent under the 2025 tax law.

If you are self-employed and use part of your home regularly and exclusively for business, you have two methods, per IRS Publication 587:

• Simplified method: $5 per square foot, up to 300 square feet, for a maximum of $1,500 a year. No depreciation, no recapture later.

• Actual-expense method: the business-use percentage of your actual home costs, which can include depreciation. The tradeoff is that depreciation gets recaptured when you sell, taxed at up to 25%.

  
  

So if you add a dedicated office during a remodel or inside an ADU, the deduction is only for the self-employed, and the actual-expense method carries a cost down the road at sale.

Rental property and ADU improvements

If you build an ADU and rent it out, the tax treatment is different from an owner-occupied improvement. Instead of adding to your basis and waiting until sale, rental improvements are depreciated over time as a business expense.

Per IRS Publication 527, residential rental property is depreciated over 27.5 years. A rented ADU starts its own 27.5-year clock the month it becomes available for rent, and you report the rental income and expenses on Schedule E. Repairs on a rental (fixing a leak, repainting) are deducted in the year you pay them, while improvements are capitalized and depreciated.

One thing to plan for: depreciation gets recaptured when you sell, taxed at up to 25%, whether or not you actually claimed it. A rented ADU can be a strong income move, but the tax side has more moving parts than a straightforward home improvement, so loop in your accountant early.

Home equity loan and HELOC interest

Many homeowners finance a major remodel with a home equity loan or HELOC, and the interest can be deductible, with conditions.

Per IRS Publication 936, the interest is deductible only when the loan proceeds are used to buy, build, or substantially improve the home that secures the loan. Fund a bathroom remodel or an addition with a HELOC, and the interest generally qualifies. Use that same HELOC to pay off credit cards, buy a car, or cover tuition, and the interest on those draws does not qualify.

A few more details. You have to itemize to claim it. The deduction applies to interest on up to $750,000 of combined home acquisition debt (your first mortgage plus the HELOC). And because this is an itemized deduction, it only helps if your itemized total clears the standard deduction.

California tax rules LA and OC homeowners should know

California does not follow every federal rule, so a few state-specific items are worth knowing for the 2026 tax year.

Solar property tax exclusion. California excludes a qualifying active solar energy system from property tax reassessment, so adding solar does not raise your assessed value the way most improvements do. This exclusion is scheduled to sunset on January 1, 2027, per the California State Board of Equalization. Systems that qualify before the deadline keep the benefit until the next change of ownership. Again, solar is a category homeowners ask about, not something we install.

Earthquake retrofits. If you do a seismic retrofit, California excludes it from property tax reassessment, and California-funded Earthquake Brace and Bolt grants are exempt from California state income tax. On the federal side those grants are currently still treated as taxable income, and recipients may receive a 1099-G reporting the grant.

Seismic retrofitting is not one of our services, but if you want the construction-side background, we cover it in our post on earthquake-smart construction in LA. The tax treatment is worth a quick check with your CPA, because it splits between federal and state.

Mortgage interest. California did not adopt the federal $750,000 cap. The state still allows mortgage interest on up to $1 million of acquisition debt, so homeowners with a mortgage between $750,000 and $1 million may deduct more on their California return than on their federal one.

ADUs and property tax. Adding an ADU does not trigger a full reassessment of your home. Per the official LA County ADU guide, only the value of the new ADU is added to your assessed value, taxed at the roughly 1% base rate plus any local voter-approved add-ons, while the existing home keeps its Proposition 13 base-year value. A room addition works the same way, assessed only on the added value.

One more nuance for higher-income households here. The state and local tax (SALT) deduction cap rose to $40,400 for 2026. For LA and OC homeowners with high property and state income taxes, that higher cap can make itemizing worthwhile again, which in turn makes mortgage and HELOC interest deductions actually useful.

Rebuilding after the 2025 wildfires: the casualty loss

This one is separate from home-improvement deductions, and it applies to a real slice of our LA audience. Homeowners rebuilding after the January 2025 Palisades and Eaton fires may be able to claim a casualty loss.

Because the fires fall under a federally declared disaster, they qualify as a "qualified disaster loss" under the 2025 tax law. Per IRS Publication 547, that treatment is more favorable than a normal casualty loss: the usual 10% of AGI floor is waived, a $500 per-event floor applies, and the loss can be claimed even if you take the standard deduction. The loss is reduced by any insurance proceeds you receive, and California does not conform to the federal waiver, so the state treatment is less generous.

A casualty loss is a different mechanism from adding improvements to your basis, and the numbers can get complicated fast, especially when insurance is involved. We coordinate with the homeowner's insurance process on rebuilds, but what your policy pays is between you and your carrier, and how the loss is calculated for taxes is a question for your CPA. If you are rebuilding, get a tax professional involved early.

The honest bottom line for most homeowners

Put it all together and the picture is straightforward. Most improvements are not written off the year you pay for them. Instead, they come back to you later, either through a higher cost basis at sale or through depreciation on a rental. The federal energy credits that drove a lot of decisions in past years are gone for 2026 installs. And because most homeowners take the standard deduction, the itemized deductions only help the households whose numbers clear that bar.

What holds up across every category is documentation. Keep your receipts, invoices, and written project scope. That is the through-line the IRS cares about, and it is the one piece of this you can control completely.

We are a licensed general contractor (CSLB License #837987), not a tax advisor, and this is general information for the 2026 tax year rather than advice for your return. Your situation is specific to you, so confirm the details with a qualified CPA or enrolled agent before you file.

Planning a remodel, addition, or ADU?

If you are weighing a project and want the kind of documentation that stands up at tax time and keeps the build itself on track, that is how we work on every job. Built to Perfection is a family-operated design-build contractor serving Los Angeles and Orange County, BBB A+ accredited since 2016 and an 8-time Best of Houzz Service winner. Kitchen remodels start at $35,000, bathrooms at $15,000, and ADUs at $120,000, and every project includes 3D design and a scope and cost written down before we open a single wall.

Reach out for a free consultation and we will walk you through what your project involves, on time and in writing.