ROI or Money Pit? Prioritizing Home Renovations with ROI and Tax in Mind

03 Nov 2025 ROI or Money Pit? Prioritizing Home Renovations with ROI and Tax in Mind

Every homeowner knows the feeling: tackle one project and three more appear. The fence needs repairing, the roof is aging, and that outdated kitchen isn’t getting any younger. The to-do list can feel endless and expensive.

While resale value often dominates the conversation around home upgrades, it’s only one piece of the puzzle. For many homeowners, your home is both your largest asset and your largest ongoing expense. Strategic improvements can impact not only future sale price, but also utility bills, insurance costs, loan eligibility, tax obligations, and your overall financial position.

In this article, we’ll walk through a strategic framework for approaching home improvements and maintenance through a financial lens – specifically focusing on return on investment (ROI), tax opportunities, and asset preservation. The goal: to help you triage your project list with a financially grounded approach.

Priority 1: maintenance – preserve before you improve

Before thinking about new countertops or flooring, make sure your house is in working order. Foundational maintenance is the first financial priority for any homeowner because deferring it doesn’t just delay the cost, it often multiplies it.

A small roof leak left unresolved might turn into mold remediation, damaged insulation, or structural rot. What could’ve been a $1,500 repair becomes a $20,000 project. HVAC failures, plumbing backups, or poor drainage can follow similar trajectories, and they rarely wait for a convenient time to fail.

These aren’t just repair bills. Deferred maintenance undermines the value of your home, even if you have no plans to sell. Appraisers and insurers alike take poor condition into account. Buyers request concessions. Lenders may question property value. Some insurers even increase premiums or reduce coverage for homes with known issues.

At a minimum, it’s worth proactively investing in:

• Roofing and flashing to prevent water intrusion and protect insulation and framing.
• Windows and siding to maintain the building envelope and energy efficiency.
• Drainage and grading to avoid foundation damage and moisture buildup.
• HVAC, plumbing, and electrical to keep core systems functional, safe, and insurable.
• Foundation and structural integrity to address cracks, shifting, and moisture early.

The best approach is proactive: set aside 1% to 3% of your home’s value for ongoing upkeep, and address problems before they escalate. A dated kitchen might slow a sale, but a failing roof or compromised foundation could stop it entirely. And a structural catastrophe could render your home (or parts of it) unusable even if you aren’t considering a sale.

Priority 2: renovations with tax benefits – build value, reduce exposure

Once your home’s structural integrity is intact, the next priority is improvements that can increase your home’s adjusted cost basis or reduce your current-year tax liability.

The IRS draws a distinction between basic repairs and qualifying improvements. The former, like patching a roof, doesn’t change your tax picture. But the latter, like replacing that roof entirely, can increase your basis, reducing capital gains when you sell. That matters in today’s high-appreciation market. While the current exclusion allows you to shield up to $250,000 (single) or $500,000 (married filing jointly) in gain, many long-term homeowners in growing markets are brushing up against those limits.

If you’ve added square footage, replaced major systems, or made other lasting improvements, maintaining accurate records can help reduce your future tax bill when you sell, but documentation is critical. Keep receipts, contracts, photos, and, if applicable, any permits that help document the work.

Some upgrades also offer immediate tax relief. Energy-efficient upgrades such as solar panels, heat pumps, and advanced HVAC systems may qualify for federal credits, but many of these incentives are set to expire after December 31, 2025.

There’s also a lesser-known opportunity tied to medically necessary modifications. If improvements are made to accommodate a health condition, such as installing ramps, widening doorways, or building accessible bathrooms, part or all of the cost may be deductible as a medical expense. The deduction only applies to the portion that does not increase your home’s value, and you must itemize deductions and exceed the AGI threshold for medical expenses (currently 7.5% of AGI). That makes this a niche opportunity, but one worth exploring for aging homeowners, those with mobility needs, or anyone whose medical expenses are approaching the threshold where itemizing becomes more beneficial than taking the standard deduction.

Special case: business use and depreciation opportunities

If a portion of your home is used for business purposes, such as a home office, short-term rental, or accessory dwelling unit (ADU), you may have access to additional tax strategies.

In these mixed-use scenarios, certain capital improvements may be depreciated under IRS Section 168, allowing you to recover part of the cost over time. Larger improvements may even qualify for accelerated depreciation through a cost segregation study, which breaks down a project into shorter- and longer-lived components. While this strategy is more common among real estate investors, it may be worth exploring for homeowners with meaningful business or rental use.

That said, depreciation comes with its own considerations. If you sell the property, depreciation claimed on the business-use portion may be subject to recapture, which means some of the previously deducted amounts could be taxed as ordinary income. In other words, this isn’t a strategy to implement without guidance. A CPA can help you determine whether depreciation fits into your broader tax plan and what it might mean for your eventual sale or long-term holding strategy.

Priority 3: high-ROI renovations

Once your essentials are in order and you’ve leveraged available tax benefits, you can begin to look at return-on-investment upgrades – those projects that may not offer tax savings, but do deliver strong financial returns by enhancing market value or appraisal outcomes.

In the most recent Cost?vs.?Value (CVV) report, 8 of the top 10 projects ranked by ROI were exterior replacements. Garage doors led the list with a staggering 267% return, followed by steel entry doors and manufactured stone veneer. These are relatively small-ticket projects, but they punch well above their weight by enhancing curb appeal and conveying that the home is well-maintained.

Interior projects can also perform well if they’re strategic. A modest kitchen remodel, like refreshed cabinets, updated appliances, and new lighting, typically outperforms major remodels and luxury additions. Similarly, refinishing hardwood floors delivers high impact at a relatively low cost.

If you’re investing for the sake of future financing, resale, or equity-building, start with:

• Curb appeal and siding
• Garage and entry doors
• Modest kitchen and bath updates
• Flooring and lighting enhancements

It’s also important to renovate with your home’s context in mind. ROI is never just about what you spend; it’s about how well that spending aligns with your neighborhood and property class.

A $300,000 kitchen in a $750,000 house rarely pencils out. Buyers compare your home to others nearby, and if your finishes far exceed local norms, they may be viewed as excessive rather than impressive. Renovations should bring your home up to standard or slightly above it, not make it the outlier on the block.

For example: adding a second bathroom to a one-bathroom home? Likely a great investment. Replacing a 20-year-old HVAC system? Smart. Turning your garage into a glass-walled gym with radiant floors? Maybe not, unless it’s for your own enjoyment, not your bottom line.

Priority 4: lifestyle projects

There’s nothing wrong with investing in your own enjoyment. After all, your home isn’t just an asset; it’s where you live. But it’s wise to approach lifestyle-driven upgrades with full clarity about their role in your financial plan.

Highly customized projects, like a koi pond, wine cellar, or home theater, typically don’t improve market value. They may even narrow your future buyer pool. However, if you’ve already handled the bigger priorities and plan to stay in your home long-term, these upgrades can still offer personal ROI.

Think of these projects as lifestyle spending, not a financial investment. They’re best timed after you’ve addressed core maintenance, captured available tax advantages, and made improvements that support your broader financial goals.

Renovate with purpose

Home projects can be exciting, but they can also be expensive, and the financial outcomes vary widely. Whether you’re improving your home to reduce future costs, secure better financing terms, preserve equity, or eventually sell, it pays to approach renovations with a strategy.

Whether you’re planning a renovation or reviewing past improvements, talk to a trusted CPA or tax advisor. They can help you determine which projects may qualify for tax credits, deductions, or basis adjustments, and advise you on how to properly document those improvements. With the right guidance, your home upgrades won’t just enhance your living space; they’ll contribute to a more tax-efficient financial future.

Contact The Haynie & Company CPA Firm For Tax Advisor Services