Owning a home is one of life’s most significant financial milestones—and it comes with more than just a sense of security and stability. Did you know that your home can also offer you some substantial tax savings? Homeowners have access to a variety of tax deductions that can lighten the financial load and make homeownership even more rewarding.
Think of it this way: your home isn’t just your sanctuary; it’s also a smart financial tool. By understanding which deductions you qualify for, you can save hundreds or even thousands of dollars during tax season. Let’s break down the most common homeowner tax deductions so you can maximise your refund and keep more money in your pocket.
1. Mortgage Interest Deduction
One of the most significant benefits of owning a home is the ability to deduct the interest you pay on your mortgage.
1.1 Who Qualifies?
Homeowners who itemize their deductions can claim this. If your mortgage was taken out after December 15, 2017, you can deduct interest on loans up to $750,000 ($375,000 if married filing separately).
1.2 How It Works
Your lender will provide a Form 1098, which details how much interest you paid over the year. Use this to calculate your deduction.
2. Property Taxes
Property taxes can be a hefty expense, but the good news is that they’re deductible.
2.1 State and Local Tax (SALT) Deduction
The SALT deduction allows you to deduct up to $10,000 in combined property and state income taxes ($5,000 for married filing separately).
2.2 What’s Included?
This includes taxes paid to your state or local government for real estate owned.
3. Points Paid on Your Mortgage
If you paid points to reduce your mortgage interest rate when you bought your home, those points are deductible.
3.1 What Are Points?
Points are upfront payments to lower your mortgage rate. Each point equals 1% of your loan amount.
3.2 When to Claim Them
You can deduct the full amount in the year you paid them if they meet IRS criteria, such as being used for your primary residence.
4. Home Office Deduction
If you work from home, you might qualify for a home office deduction.
4.1 Qualifying Criteria
The space must be used exclusively and regularly for business.
4.2 What You Can Deduct
You can deduct a portion of your mortgage interest, property taxes, utilities, and home maintenance costs based on the percentage of your home used as an office.
5. Energy-Efficient Home Improvements
Going green doesn’t just help the environment—it can also save you money on taxes.
5.1 Energy Tax Credits
- Residential Clean Energy Credit: Covers solar panels, wind turbines, and geothermal systems.
- Energy Efficient Home Improvement Credit: Covers energy-efficient doors, windows, and insulation.
5.2 How Much Can You Claim?
Credits can be up to 30% of the cost of the improvement, depending on the type.
6. Capital Gains Exclusion
If you sell your home for a profit, you might not owe taxes on the entire amount.
6.1 The Exclusion Rule
You can exclude up to $250,000 of capital gains ($500,000 if married filing jointly) if the home was your primary residence for at least two of the last five years.
6.2 What’s Excluded?
The exclusion applies only to the sale of your primary residence, not investment properties.
7. Private Mortgage Insurance (PMI) Deduction
If you pay PMI because your down payment was less than 20%, this expense may be deductible.
7.1 Income Limits
This deduction phases out for homeowners with an adjusted gross income above $100,000 ($50,000 if married filing separately).
7.2 Where to Report
Report this deduction on Schedule A of your tax return.
8. Home Equity Loan Interest
If you’ve taken out a home equity loan or line of credit (HELOC), the interest may be deductible—provided the loan was used to improve your home.
8.1 What Qualifies?
The loan must be used for renovations or repairs, not personal expenses like vacations or debt consolidation.
8.2 Deduction Limits
Interest on loans up to $100,000 ($50,000 for married filing separately) is deductible.
9. Medical Home Modifications
If you’ve made home improvements to accommodate a medical condition, those costs could be deductible.
9.1 Qualifying Modifications
Examples include installing ramps, widening doorways, or adding handrails.
9.2 How to Claim
These expenses must exceed 7.5% of your adjusted gross income to be deductible.
10. Casualty Losses
If your home was damaged by a natural disaster, you might be able to deduct the unreimbursed costs.
10.1 Qualifying Events
Losses must result from federally declared disasters, such as hurricanes or wildfires.
10.2 How It Works
You can deduct the amount not covered by insurance, minus $100 per event and 10% of your adjusted gross income.
Conclusion: Make Your Home Work for You
Owning a home isn’t just a place to live—it’s a chance to unlock valuable tax benefits. By taking advantage of deductions like mortgage interest, property taxes, and energy-efficient improvements, you can significantly lower your tax bill. Remember, the key is to keep detailed records and stay informed about changes in tax laws. Your home is more than just an asset; it’s a gateway to financial savings.
FAQs
1. Can I claim a deduction for renting out part of my home?
Yes, you can deduct expenses related to the rented portion, such as utilities, repairs, and depreciation.
2. What happens if I refinance my mortgage?
You can deduct the interest on your new loan, but points paid during refinancing may need to be spread out over the loan term.
3. Are home insurance premiums deductible?
Generally, no. However, they might be deductible if the home is used for business purposes.
4. Do I need to itemize deductions to claim homeowner tax benefits?
Yes, most homeowner deductions require itemizing on Schedule A.
5. Can I claim deductions for a second home?
Yes, but the rules vary. Mortgage interest and property taxes for a second home are generally deductible.
6. Are HOA fees deductible?
No, HOA fees are not deductible unless the home is used as a rental property.
7. How do I claim energy-efficient home improvement credits?
File Form 5695 with your tax return and include receipts for qualifying expenses.