Home improvements to your personal residence are generally not tax deductible in California. The money you spend remodeling a kitchen, replacing floors, or adding a bathroom is a personal expense with no immediate write-off on either your federal or state return. Real tax benefits exist in a few specific situations: medically necessary modifications, work on rental or business property, and the cost basis adjustment that lowers your gain when you sell. California layers on its own property tax exclusions for seismic retrofits and solar systems. And one recent change worth knowing about right away: the federal energy credits that used to reward efficiency upgrades were ended early and no longer apply to work completed in 2026.
Why Most Improvements Aren’t Deductible
The IRS splits work on your home into two categories. A repair keeps the property in its current condition: a patched drywall hole, a fixed faucet, a replaced window pane. For a personal residence, repairs produce no tax benefit at all.
A capital improvement adds value, extends the home’s useful life, or adapts it to a new use. A new roof, central air, a finished basement, an added deck. Capital improvements don’t get deducted the year you pay for them either. What they do instead is quieter but can be worth serious money later.
How Improvements Cut Your Tax Bill When You Sell
Every qualifying capital improvement raises your home’s cost basis. Basis starts at your purchase price plus certain closing costs. Add improvements, and your adjusted basis climbs. When you sell, your taxable gain is the sale price minus that adjusted basis, so a higher basis means a smaller gain.
An example. You bought for $600,000 and put $80,000 into a new roof, a kitchen update, and an added bathroom over the years. Your adjusted basis is now $680,000. Sell for $1,100,000 and your gain is $420,000 instead of $500,000.
Federal law lets you exclude up to $250,000 of gain on the sale of your principal residence if you’re single, or $500,000 if married filing jointly.1Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence You must have owned and used the home as your primary residence for at least two of the five years before the sale.2eCFR. 26 CFR 1.121-1 – Exclusion of Gain From Sale or Exchange of a Principal Residence California generally follows this exclusion. Below those limits, your basis adjustment does little on the federal return. Above them, and long-tenured California homeowners routinely land above them, every documented improvement directly cuts what you owe.
Keep the Paperwork
None of this works without proof. Hold onto invoices, contractor receipts, and permits for every capital improvement as long as you own the home, and for at least three years after you file the return for the year of sale. Without documentation, the IRS can disallow the basis adjustment entirely. A folder per project with the receipt, a description, and the completion date is enough.
Medically Necessary Home Modifications
Improvements made primarily for medical care can be deducted as an itemized medical expense on your federal return, for you, your spouse, or a dependent. There’s a catch: you can only deduct the portion of the cost that exceeds any increase in your home’s fair market value.3Internal Revenue Service. Publication 502 – Medical and Dental Expenses
Spend $20,000 on a wheelchair-accessible bathroom, and an appraiser finds the work added $6,000 in value, and $14,000 qualifies as a medical expense. IRS Publication 502 provides a worksheet. Some accessibility modifications are treated as adding no value at all, so the entire cost qualifies: entrance ramps, widened doorways and hallways, grab bars, lowered kitchen cabinets, modified stairways, and porch lifts.3Internal Revenue Service. Publication 502 – Medical and Dental Expenses
Two limits narrow who actually benefits. You have to itemize instead of taking the standard deduction. And you can only deduct total unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.4Internal Revenue Service. Topic No. 502, Medical and Dental Expenses At an AGI of $100,000, the first $7,500 in medical costs produces no deduction. The floor is high enough that this deduction realistically helps homeowners facing significant accessibility work in a single tax year.
Federal Energy Credits Ended in 2025
If you’ve read that solar panels, heat pumps, or new windows come with a 30% federal tax credit, that was true through the end of 2025 and is not true now. The One Big Beautiful Bill Act, signed July 4, 2025, terminated both major residential energy tax credits ahead of their originally scheduled expiration dates.5Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under the One Big Beautiful Bill
The Energy Efficient Home Improvement Credit under Section 25C covered 30% of insulation, exterior windows and doors, heat pumps, heat pump water heaters, biomass stoves, and energy audits, with annual caps of $1,200 for general improvements and $2,000 for heat pump equipment.6Internal Revenue Service. Energy Efficient Home Improvement Credit It does not apply to any property placed in service after December 31, 2025.
The Residential Clean Energy Credit under Section 25D offered 30% back on solar electric, solar water heaters, geothermal heat pumps, wind turbines, fuel cells, and battery storage, with no annual dollar limit for most equipment.7Internal Revenue Service. Residential Clean Energy Credit It was originally set to run at 30% through 2032. The new law cut it short: the credit does not apply to expenditures made after December 31, 2025. The IRS treats an expenditure as “made” when installation is completed, so a solar system ordered in 2025 but not installed until 2026 does not qualify.
If you completed qualifying work in 2025 or earlier and haven’t yet claimed the credit, you can still claim it on the return for the year the work was finished, using Form 5695. For new projects, the direct federal incentive is gone. The improvements still add to cost basis and can lower utility bills. California’s property tax treatment of solar, covered below, is a separate benefit that still applies.
Rental and Home Office Property
The rules change once the property produces income. Deductions that don’t exist for a personal residence open up when part of the home is a rental or a qualified business space.
Rentals
Repairs to a rental are fully deductible as operating expenses in the year you pay for them. A new garbage disposal, a patched roof leak, or fresh interior paint reduce taxable rental income immediately.
Capital improvements to a residential rental follow a different track. You capitalize the cost and depreciate it over 27.5 years using the straight-line method.8Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System A $27,500 new roof produces a $1,000 annual depreciation deduction. Major replacements like a full roof, all windows, or a furnace each get their own 27.5-year schedule.9Internal Revenue Service. Depreciation and Recapture
The de minimis safe harbor election lets landlords immediately expense items that would otherwise need to be capitalized, if the cost is $2,500 or less per invoice or item.10Internal Revenue Service. Notice 2015-82 – De Minimis Safe Harbor Limit The threshold applies to taxpayers without audited financial statements, which covers most individual landlords. A $2,200 water heater can be written off entirely in the year of purchase rather than depreciated for 27.5 years.
The One Big Beautiful Bill Act restored 100% bonus depreciation for qualified property acquired after January 19, 2025.11Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill Bonus depreciation applies to property with a recovery period of 20 years or less, so structural rental improvements like a roof or HVAC don’t qualify. Shorter-lived items inside the rental, such as appliances and carpeting, do qualify for immediate 100% write-off.
Home Office
If you’re self-employed and use part of your California home exclusively and regularly as your principal place of business, home office expenses become deductible. The simplified method pays a flat $5 per square foot, capped at 300 square feet, or $1,500 maximum; improvement costs are not separately deducted under this method.
The regular method, filed on Form 8829, deducts actual expenses based on the business-use percentage of your home. An improvement made only to the office space is fully deductible as a direct expense. A whole-house improvement, like a new furnace or roof, is deductible at your business-use percentage: 12% of the cost if the office is 12% of the square footage. Under the regular method, capital improvements to the home are depreciated over 39 years rather than deducted all at once.
California Property Tax Exclusions
State income tax generally tracks the federal rules above. Where California adds its own value is on the property tax side, and this is where meaningful money can be saved on the right kind of project.
Under Proposition 13, your home’s assessed value is capped at its purchase price plus a maximum 2% annual increase. New construction, including many improvements, triggers a reassessment, but only of the new work. The county assessor values just the improvement at current market value and adds it to your existing assessment.12California Board of Equalization. How Property Is Assessed Add a $150,000 addition to a home assessed at $400,000 and the new value becomes $550,000, with your $400,000 base still locked in at the 2% cap. The same blended treatment applies to accessory dwelling units: building an ADU does not trigger a full reassessment of the primary home.
Seismic Retrofit Exclusion
Under Revenue and Taxation Code Section 74.5, seismic retrofitting is not treated as “new construction” for Prop 13 purposes.13California Legislative Information. California Revenue and Taxation Code 74.5 – New Construction Seismic Retrofitting Bolting a foundation, bracing cripple walls, and other qualifying earthquake safety work do not increase your assessment at all.
To claim it, notify your county assessor before or within 30 days of completing the project, and file all supporting documentation within six months of completion. The exclusion covers structural strengthening and hazard abatement work. Cosmetic or unrelated improvements bundled into the same job, such as new plumbing or finishes, are not covered.
Solar Energy System Exclusion
California also excludes active solar energy systems from property tax reassessment. Rooftop solar would otherwise count as new construction and raise your assessed value. The exclusion is currently scheduled to sunset on January 1, 2027.14California Board of Equalization. Active Solar Energy System Exclusion Legislation to extend it further has been proposed. If you’re considering solar in 2026, a call to your county assessor to confirm current status is worth the time.
Disaster Losses and Retrofit Grants
Two more California-specific items can help homeowners recover money on work tied to natural hazards.
If your home is damaged or destroyed in a disaster declared by the President or the Governor, you can deduct the unreimbursed loss on your California state return.15California Franchise Tax Board. Disaster Loss Deduction California generally follows federal casualty loss rules, with one meaningful difference: the state allows the deduction for state-declared emergencies, not only presidentially declared disasters. You can claim it in the year the disaster occurred or on the return for the year immediately before. The provision applies to losses occurring between January 1, 2014, and January 1, 2029. California also postpones filing and payment deadlines after major disasters, canceling interest and penalties during the postponement.
Separately, the state’s Earthquake Brace + Bolt program offers grants of up to $3,000 toward seismic retrofitting for older homes in more than 1,100 eligible ZIP codes, covering work like bolting the house to its foundation and bracing cripple walls.16California Department of Insurance. Earthquake Brace and Bolt Grant Program Opens for 2025 Applications The program recently expanded to include rentals and other non-owner-occupied residential buildings.17California Earthquake Authority. Earthquake Brace + Bolt Grant Program Opens Again For 2025 The grant reduces out-of-pocket cost directly rather than lowering a tax bill, and combined with the Section 74.5 property tax exclusion, a qualifying homeowner can retrofit the foundation at reduced cost with no assessment increase. Application windows are limited, so check the program’s website for current dates and ZIP code eligibility.