Homeowners Tax Deductions List to Remember
Do you know what is tax-deductible when buying a house?
Maybe you want to know the tax credits for homeowners?
Well, you will get just what you need with my tax deductions list for homeowners!
Tax season is an excellent time to be a homeowner. Unlike renters, you can take advantage of some tax breaks geared toward homeowners.
These tax benefits of owning a home can amount to thousands of dollars in savings and sometimes even more.
Clients often ask me, “What homeownership tax deductions must I remember?”
Nobody wants to leave money on the table when it comes to taxes. The Federal Government gets enough of our hard-earned money as it is!
Considering how much money you may have spent on your home or are still paying, you deserve a homeowner tax break.
However, you can only take advantage of tax breaks if you know about them.
So, learn about the tax deductions from the home you bought last year that may benefit you and your finances.
From thirty-eight years as a real estate agent and owning homes in multiple states, homeownership tax deductions are plentiful if you know where to look!
My guide will explain all of them so nothing falls through the cracks.
When tax time comes around, you have everything detailed for your accountant to handle.
Any good tax advisor will handle all these tax deductions that can be claimed after a home purchase or sale. Use this information to put yourself in the best position for tax savings.
Standard Deduction vs. Itemized Deductions
One of the first considerations when figuring out tax deductions for homeowners is to know whether your itemized deductions will be greater than the standard deduction.
Using the standard deduction will be more advantageous if your itemized deductions are insignificant. Some of the best tax advice is keeping detailed records so you don’t miss any potential tax breaks.
Your tax bill could be higher if you miss some home expenses deductible. Keeping track of your qualified expenses could save a lot of money.
Both the standard deduction and itemized deduction can reduce your taxable income.
The Internal Revenue Service (IRS) allows the standard deduction for all tax filers.
The Standard Deduction Breakdown
For the 2024 tax year, the standard tax deduction is as follows:
- With married couples filing jointly, the standard deduction is $29,200.
- For single taxpayers and married filing taxes separately, the standard deduction is $14,600.
- For heads of households, the standard deduction is $21,900.
You can get the full coverage of these tax breakdowns on the IRS website.
When you choose the standard deduction, your taxable income will be reduced by a fixed amount. You do not take a standard deduction with itemized tax deductions for homeowners.
The total of your itemized deduction will offset your taxable income, which drops your tax liability. When your potential homeownership tax deductions are numerous, you should opt for itemizing.
Itemized deductions are claimed on Schedule A of your federal tax returns. It gets filed with form 1040.
Your Tax Deduction Checklist
Here are the homeowner tax deductions you should take advantage of come tax time! Let’s take a look at all the tax credits for homeowners.
Some things have changed since the Tax Cuts and Jobs Act was instituted a few years back.
Mortgage Interest
Some tax breaks for homeowners are only mildly beneficial, but others – like mortgage interest deductions – can result in significant savings. Having mortgage debt on a principal residence will result in one of the most significant tax breaks.
Tax law says you can deduct up to a million dollars of mortgage interest. If you are like most homeowners, you will not come close to paying a million dollars in interest, so you get to deduct all of it.
The mortgage interest deduction is particularly beneficial in the first years of ownership, as most home loans make you pay back interest first. Interest payments on a home loan are substantial in the first few years.
You may easily deduct $10,000 or more of interest in your first year. It all depends on how much your loan was for and how much interest you paid.
Mortgage interest will continue to be a tax break for the life of the loan if you make mortgage payments and the tax laws don’t change.
You may wonder whether you can deduct mortgage interest if you hold a reverse mortgage. The IRS considers a reverse mortgage as a loan advance and not income.
So, the money you receive isn’t taxable. Additionally, the interest accrued on a reverse mortgage isn’t tax-deductible until the loan is paid off. With a reverse mortgage, you can’t take a deduction for the interest each year like you would with a regular mortgage.
Property Taxes
Local taxes are another deduction that can be ideal for your finances, depending on what part of the country you live in.
Years ago, all of your property taxes were deductible. Unfortunately, this is no longer the case. Deductions for property taxes took a significant hit in the last change to the tax code.
It was one of the tax cuts that many were disappointed to see go.
It used to be if you lived in an area where your property taxes were high, you could wind up deducting thousands of dollars.
Of course, the benefits are much less noticeable if you live in an area with low property taxes. Whatever the circumstances, taking the property tax deduction is still worth your time.
You can still get a tax break for paying property taxes, but there is now a limit. That doesn’t mean you can toss your property tax bill aside.
You can deduct up to ten thousand (five thousand if married and filing separately) of property taxes in combination with state and local income taxes.
Paying their fair share of real estate taxes is something people are sensitive to.
While working as a real estate agent, one of the most common questions I am asked is how to challenge real estate tax assessments. Nobody wants to pay more real estate taxes than they should.
Lots of folks think they are paying more than their neighbors.
The Second Property Homeownership Tax Break
Many people do not realize that second-home real estate taxes are also deductible. So, if your primary residence is up north and you decide to buy a getaway home down south in warmer weather, you can also deduct the real estate taxes on that property.
Keep this in mind when you are getting your taxes ready for April.
Home Sale Exemption
If you sold your home last year and made money off of the sale, the money you made – your capital gains – is free from taxation as long as you are below the threshold. A single person can make up to $250,000 from a home sale, while a married couple can make $500,000.
That tax-free profit can be used to upgrade to a better home or whatever you like. Keep in mind the property must have been your primary residence to qualify. Real Estate capital gains tax deductions are one of the most significant breaks given to homeowners by the Federal Government.
If you have sold your home in the past year, speaking to a tax professional to understand your particular tax situation is a good idea. The capital gains exception is a homeowner tax deduction you won’t forget.
Knowing the capital gains tax laws on a second home sale is also essential. There could be further tax breaks for buying a house you didn’t realize.
Ensure you are up to speed on all the tax deductions when selling a home.
Private Mortgage Insurance (PMI)
Homebuyers who cannot pay a complete 20% down payment on a property are usually required to carry what’s known as private mortgage insurance.
Private mortgage insurance is a type of insurance that protects the lender if a borrower defaults on the loan. For many homebuyers, paying private mortgage insurance is a cost of doing business.
It is, however, possible to avoid paying PMI, which is detailed in the above reference.
Luckily, if you made less than $100,000 last year, you can deduct the money you paid for the PMI.
How much benefit you get from your deduction depends on your spending on PMI, which can vary considerably.
The PMI deduction was in effect from 2007 until 2017, when it was removed as a homeowner tax deduction. However, PMI was reinstated as a viable tax break for homeowners in 2020.
It was reinstated under the Consolidated Appropriations Act. It is something you should not forget about. Add it to your homeowner tax deduction list now.
You should be aware that the deduction for qualified mortgage insurance premiums is reduced if your adjusted gross income is over $100,000; you can’t claim the deduction if it’s over $109,000.
Legally, lenders are supposed to automatically cancel PMI once you get to twenty-two percent equity in your home. It makes sound financial sense to stay on top of the market value of your property.
Mortgage Discount Points
Mortgage points attract some buyers because they allow you to drive down your interest rate or help with origination fees. Points make sense for some buyers but are not worthwhile for others.
But if you were a buyer who bought points, you can take advantage of the tax break that comes with it. A point equals 1 percent of your loan amount or $1000 for every hundred thousand borrowed. For example, if you borrow $200,000, a point would equal $2000.
Generally speaking, paying points when you plan to be in the home for a while makes sense. You are bringing the interest rate down on your loan by paying points.
Paying points does not make sense if you only intend to stay in your home for a few years. An outstanding mortgage lender should show you how long it will take to repay the points.
Nonetheless, if you already paid points in the past year, they are a homeowner tax deduction you will want to remember. If you just bought, ensure you look over all your closing costs for potential deductions.
Tax Credit For Homeowners
As a homeowner, don’t forget about any tax credits you are due. Tax credits are the government’s financial incentives to encourage certain behaviors and property investments.
These incentives can significantly reduce the income tax a homeowner owes to the federal or state governments. Unlike tax deductions, which lower the amount of taxable income, tax credits directly decrease the amount of tax owed, dollar for dollar.
This makes them particularly valuable for homeowners. I often remind my real estate clients not to forget about these tax breaks, especially first-time homeowners.
Here are the main types of tax credits homeowners might be eligible for:
Residential Energy-Efficient Upgrades
There are tax benefits for homeowners who upgrade their homes, focusing on energy efficiency. An energy credit has become more familiar with homeowners looking to go green.
There are a lot of different possibilities for energy-efficient upgrades, ranging from big ones like solar panels, wind turbines, and solar water heaters to less substantial updates, like ceiling fans that are energy efficient.
Here is an excellent resource from Energy.Gov that details energy efficiency tax credits. Use this resource to calculate the homeowner tax deductions you are eligible for with your home improvements.
Renewable Energy Upgrades
For the right upgrades – like solar energy systems – you can get a 30% credit. For others, like a ceiling fan, you may only earn a $50 credit. There are also roofs, insulation, water heaters, and more credits.
As a homeowner, understand that not every upgrade you add to your home equals a one-for-one value increase.
For example, I know many people who think adding solar power to their home will increase the market value by whatever the installation cost.
Not true! There may be very little return in some areas of the country. If you have to put solar panels on the front of your home and it is now ugly as a sin, don’t expect a high return on investment.
If you have installed energy-efficient upgrades, research and verify what residential energy credits you qualify for. You may be surprised to discover how much of a break you get for your improvements.
You’ll use tax form 5695 residential energy credits when figuring your taxes. These tax breaks for buying a home can be excellent!
Wind Turbine Tax Credit For Homeowners
A little-known tax break for homeowners is installing small wind turbines at your home.
This tax credit for homeowners covers 30 percent of the cost of installing the turbines at your main home and one other.
Your tax savings can be significant since you cannot claim maximum tax credits.
See some detailed info on the wind power tax credit.
Historic Preservation Credits
For owners of historic properties, tax credits are available for the preservation and rehabilitation of historic buildings. These credits are intended to encourage the maintenance and preservation of historic structures while ensuring they meet specific standards for rehabilitation.
Home Improvement Loan Interest
Particular loans for home improvements allow you to get a tax break on the interest you pay, like a home equity loan or home equity lines of credit (HELOC).
Much like mortgage interest, the tax benefits of this credit will be most significant for the first few years of the loan when most of your payments are going towards interest.
Home improvement loan interest tax breaks can be sizable, sometimes in the thousands of dollars.
If you took out a home improvement loan when purchasing your house, check and see if you have a tax deduction coming your way!
Ensure you understand the difference between renovations and repairs. Improvements or renovations are tax deductible. On the other hand, repairs are not.
The Home Office Deduction
Did you know that business use of your home is a homeowner tax deduction? It’s true. Remember not to forget this vital addition to your home tax deductions checklist. A portion of your home can be used as a tax break.
Rather than keeping track of all your home office expenses, you can take a deduction based on the square feet in your home office.
You could get a tax break if your home office is dedicated purely to work. You can deduct $5 per square foot up to 300 square feet for a maximum deduction of $1500.
The room needs to be used just for work, though, because if you get audited, the IRS may decide the deduction is not valid if anything else is done in the room.
Home office tax deductions are not something you want to fool around with. If you are unsure whether or not you qualify for a home tax deduction, speak to a tax professional.
Charitable Donations
One of the tax credits for homeowners that many folks forget about is making a charitable donation. Did you have a charity organization pick up donations at your home?
Many homeowners will decide to get rid of things in their homes when they buy or sell.
If you have a significant amount of furniture donations, you may get a decent income tax reduction.
Mortgage Credit Credit Certificate
The state or local government issues a mortgage credit certificate. The certificate allows taxpayers to claim a homeowner tax credit for a portion of their mortgage interest paid during the previous year.
This homeownership deduction is for lower-income families. The program allows homebuyers to claim a tax deduction for a portion of mortgage interest to a maximum of $2,000.
Most homeowners who take advantage of this tax break are first-time homebuyers who earn less than the statewide median income.
See this excellent reference explaining everything to know about a mortgage credit certificate.
Improvements For Medical Reasons
Tax breaks for homeowners can include certain medical expenses.
Home improvements could be deductions as medical expenses if made for medical care for yourself, your spouse, or dependents.
Some examples of improvements would be home expenses related to the following:
- Widening doorways to accommodate wheelchair access.
- Installing ramps for a wheelchair.
- Installing railings or support bars in bathrooms.
- Installation of a lift chair.
- Changing the grade of the land to accommodate access to the home.
Deduction For Rental Expenses
Another homeowner tax benefit occurs when part of your home is used for rental income.
Did you rent a room in your home to make some extra money? When renting part of a house, you will owe taxes on the rental income but can deduct your expenses associated with the rental space. Some examples of rental tax deductions would be:
- Home Insurance
- Real Estate taxes
- Utilities
- Maintenance costs
- Repair expenses
- Depreciation on the area of the house used
What Are Non-Deductible Homeownership Expenses
While there are many tax credits for homeowners, there are also tax deductions you can’t take. Some of the more common items people wonder about for potential deductions are the following:
- Your utility bills, such as gas, oil, or electricity.
- Domestic services such as a house cleaner or landscaper.
- Fire or flood insurance.
- The amount of principal on your mortgage payment.
Remember, you won’t have to remember each item if you have a homeowners tax deductions list. You can take it out each year when filing your taxes.
Homeowner Tax Deductions Can Get Complicated
If you are the kind of person who inputs your W-2 and gets your refund each tax season, dealing with the details of all the different homeowner tax deductions you are eligible for can be a little intimidating.
Various online tax programs can help guide you through filing with deductions, or you can hire an accountant or financial planner to assist you with your taxes. The tax bracket you fall into could also impact your tax bill.
If you need legal advice with your return, asking a tax professional is paramount.
While it may cost more than a simple tax return, the financial benefits from your homeownership tax deductions will usually compensate for the price of getting help. I highly recommend getting tax advice unless your return is simplistic.
If you’re confident in your financial understanding of all the items on my list, you can use tax software like Turbotax.
Final Thoughts
As you can see, homeownership tax benefits are numerous. Because filing as a homeowner is more complicated, allow yourself plenty of time to complete your return and file before the deadline.
Waiting until the last minute, especially if you have never done a more complicated return, is a recipe for stress and possible mistakes. Your tax amount is often tied to knowing the current tax laws. You might get a tax refund when you get all the tax breaks for buying a home.
Good luck, and take all the home-buying tax deductions you are entitled to!
Additional Helpful Tax-Related Articles
- Real Estate tax tips – get some of the best tax tips, whether buying or selling a house, from Maximum Real Estate Exposure. Quite a few tax topics covered will become helpful when filing with the IRS.
Use these additional buyer tax deduction references to make intelligent financial planning moves come tax time!
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on the tax deductions list for homeowners. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
