Supervision/Guides/Tax & Equity Protection

IRS Publication 523: What Remodel Expenses Can You Legally Deduct?

Published: 2026-10-18•Verified by Supervision Engineering

Key Takeaway & Answer Summary

IRS Publication 523 defines a capital improvement as any alteration that adds to the value of your home, prolongs its useful life, or adapts it to new uses. To legally add an expense to your adjusted basis, the improvement must still be present when you sell the property (e.g., if you installed wall-to-wall carpeting and later replaced it with hardwood, only the hardwood adds to final basis).

The Three Tests for Capital Improvements

To qualify under Treasury Regulation § 1.263(a)-3, a project must meet at least one of these criteria: 1. Betterment: Corrects a material defect, results in a material addition, or increases property productivity. 2. Restoration: Replaces a major structural component or substantial part of the home. 3. Adaptation: Adapts the property to a use different from the original intent (e.g. converting a garage into an ADU).

Frequently Asked Questions

Does painting count as a capital improvement?

Painting a room by itself is considered routine maintenance and does not step up basis. However, if painting is done as an integral part of an extensive remodel project (e.g., painting newly hung drywall in an addition), the entire painting cost qualifies as a capital improvement.

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