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Money

Paying for a kitchen remodel

Cash, a home equity loan or line, a cash-out refinance, a personal loan or contractor financing, plus what the IRS says about interest and basis.

A homeowner reading a printed contract at a kitchen table

How you pay shapes the remodel as much as the budget does: a loan has to close before work starts, and the contract's payment schedule decides how much money is at risk at any moment.

The usual ways to pay

  • Cash from savings. Nothing to close, nothing to qualify for.
  • A home equity loan or line of credit, borrowed against the value of the home, with the home as security.
  • A cash-out refinance, which replaces the mortgage with a larger one.
  • A personal loan, unsecured, usually at a higher rate than borrowing against the house.
  • Financing arranged by the contractor through a lender. Read who the lender is, the rate after any promotional period, and what happens if the work is not finished.

What the IRS says about the interest

Interest on a loan secured by your home is deductible only if the money was used to buy, build or substantially improve that home, according to IRS Publication 936. An improvement is substantial if it adds to the value of the home, prolongs its useful life or adapts it to new uses; repairs that only keep the home in good condition are not. Whether you can deduct anything depends on your whole return, so ask a tax professional.

What it means when you sell

IRS Publication 523 lists kitchen modernization and built-in appliances among the improvements that increase the basis of your home, which can reduce the taxable gain when you sell. Keep the contract, the invoices and the proof of payment.

Pay as the work is done

A payment schedule tied to finished stages protects you better than one tied to dates. Some states put limits in law:

  • California: the down payment on a home improvement contract may not be more than $1,000 or 10% of the contract price, whichever is less, and the contractor may not take payment for work not yet done or materials not yet delivered.
  • Nevada: for an owner who lives in the house, the down payment may not be more than $1,000 or 10% of the contract price, whichever is less, unless the contractor keeps a $100,000 consumer bond with the state board.

See The contract.

Updated 2026-10-12.

Sources

More guides

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