Tax-Deductible Home Improvements for Retirement in 2025

Over the years, after countless aesthetic and maintenance upgrades, you’ve finally decided to retire in your forever home. But is your house ready for retirement?

According to AARP, more than 75% of adults aged 50 and older want to “age in place” in their current homes. However, one-third say they need modifications to make that happen.

Fortunately, the IRS allows tax deductions for medically necessary home improvements, so long as the upgrades meet certain requirements. But be aware of how the renovation might impact your house value, which could raise instead of lower your tax bill.

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Let’s start by looking at how to deduct home improvement costs with the medical expense tax deduction.

Related: Check out Kiplinger's latest coverage on The Fall Garden 'Tax': What to Plant and How to Prepare.

Medical expense tax deduction

To claim the medical expense deduction, you must itemize your tax return rather than claim the standard deduction. Data show that only 1 out of 10 people itemize when filing federal taxes.

Medical expenses are deductible to the extent that costs exceed 7.5% of your adjusted gross income (AGI).

For instance, if you have an AGI of $200,000 and medical expenses of $20,000…

• 7.5% of your AGI is $15,000.
• $20,000 in medical expenses - $15,000 AGI = $5,000.
• You can deduct $5,000 of medical expenses on your federal income tax return.

But the “7.5% rule” isn’t the only requirement to claim a medical expense deduction. If you're claiming home modifications for medical purposes (more on that below), the cost of your home upgrade must also:

• Benefit yourself, your spouse, or your dependents.
• Be incurred to primarily alleviate or prevent a physical or mental disability or illness.
• Not be covered by insurance.

Check out the IRS webpage for medical expense tax deduction requirements. But next, we’ll cover a few key qualifications.

Aging-in-place and the medical expense tax deduction

You may think that any qualifying medical expense counts for the deduction. However, permanent improvements that increase your home’s value can only be partly included as a medical expense. The difference between the upgrade cost and your property’s increased value determines your total medical expense tax deduction.

Also, the IRS only considers reasonable costs for medical care. Upgrades that increase a home's architectural or aesthetic value are not permitted.

Remember: Your home improvement must be for medical purposes only if you want to claim the medical expense deduction. It’s important to get a doctor’s note citing a disability, illness, or disease to substantiate why you need the upgrade.

That said, let’s examine a survey of the top aging-in-place projects to identify a few potentially tax-deductible home improvements.

Home improvement ideas for retirement

The National Association of Home Builders recently surveyed a group of remodelers about which aging-in-place projects homeowners choose. Here are a few ideas for your next home improvement project:

• The top three home improvements were in the bathroom, with 93% reporting support bar fixtures, 83% reporting a curbless shower, and 77% reporting higher toilet installations.
• The fourth highest home improvement was widening doorways. This is important for individuals with mobility limitations. An older home doorway may be less than the ADA standard of 32 inches wide.
• The fifth most popular home improvement was lighting, such as adding more lights, lowering light switches, or replacing older switches with “rockers” that are easier to toggle back and forth.

Other projects included adding a full bedroom and bathroom on the main floor, introducing ramps outside, installing non-slip floors, and lowering countertops and kitchen cabinets.

However, not all of these home improvements may qualify for a tax deduction. If in doubt, consult with a tax professional and be sure to obtain a doctor’s note proving why these upgrades are medically necessary for your household.

Retiree home improvements that might not lower your taxes

Here are a few aging-in-place home upgrades that might not reduce your tax bill:

• Elevators. Even if medically necessary, elevators are assumed to add significant value to a home. This can increase your property tax bill (more on that below). Stair lifts may be a suitable alternative to help save on medical costs.
• Swimming pools. While there are rare instances where a pool could be tax deductible, typically, you cannot claim a deduction if pools are used for recreational purposes (even if occasionally).
• Home repairs. General primary home maintenance, such as painting, replacing rotten wood, and changing shower heads, isn’t tax deductible.

House renovations can increase property tax

Your home’s property tax is assessed based on the original cost you paid for the house plus any additions or improvements (with a periodic reassessment completed by the corresponding municipality).

So, if you add a home improvement, you may increase your property tax liability.

For instance, say you purchased a house for $200,000. Later, you added a first-floor master bedroom for $50,000. After the addition, your property was reassessed at $280,000.

The new home value was increased by your home upgrade, which naturally increased the fair market value of your property and, thus, future property tax bills.

For significant home improvements, consult a tax professional to determine how your taxes may be impacted.

Related: The Original Property Tax Hack: Avoiding The ‘Window Tax’

Capital gains tax impact on home improvements

Just because you want a home improvement tax deduction doesn’t mean you want an astronomical tax bill if you decide to move later. That could happen if you overlook capital gains taxes.

However, you can avoid the capital gains tax if your home sale qualifies for the capital gains tax exclusion. If you meet the requirements for the exclusion, you can exclude up to $250,000 (or $500,000 for married filing jointly couples) of capital gain from your primary home sale.

Let’s see how that works, assuming you meet all exclusion requirements and you are a single filer:

• If you purchased a home for $200,000 and later sold the house for $500,000, part of your $300,000 difference could be subject to capital gains tax.
• But if you can prove $50,000 of home upgrades, your home’s tax basis would be $250,000. The difference between the selling price of $500,000 and the new tax basis of $250,000 is less than before and may not be taxed.

Note: Be sure you are also up-to-date on state tax laws. Some states may tax capital gains and home sales differently.

So how do you “prove” your home upgrades to a tax assessor? Well, start by keeping good documentation of every improvement you make.

Tax documentation for renovation projects

Documents like the following can help you prove your home project increased your tax basis and therefore reduce your capital gain if you decide to sell:

• Contractor agreements and invoices.
• Purchase orders.
• Receipts and cancelled checks.

You should also keep these documents if the IRS has questions about your home improvement medical expense tax deduction. For more information on which tax records you should hold onto, check out Kiplinger’s report How Long Should You Keep Tax Records?.

Bottom line: Consider retirement needs for your home

Aging-in-place retirees can benefit from lower monthly costs, maintain familiarity and comfort, and preserve independence during their golden years. This can make investments in your forever home right for you.

But whether planning for your or a loved one’s retirement, form an aging-in-place plan. Include home improvements that will adapt to future health challenges. And bear in mind any helpful (or pesky) tax considerations you could encounter.

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