Tax deductions for homeowners

As a homeowner , you may qualify for several tax deductions and credits related to owning and maintaining residential real estate. This blog will continue to share and update information as new deductions, credits, or clarifications become available, including references for further reading.

If you choose not to take the Standard Deduction, you may opt for Itemized Deductions if their total exceeds the standard deduction amount. Below are key Itemized Deductions available to homeowners:

1. Mortgage Interest Deduction

• Homeowners may deduct interest paid on their mortgage for loans up to $750,000 ($375,000 if un-married / filing separately). For loans taken before December 15, 2017, the limit is $1,000,000 ($500,000 if married filing separately).
• Applies to first and second homes.
• Usually a form 1098 is issued by the mortgage company

2. Property Taxes

• You may be able to deduct up to $10,000 ($5,000 if married filing separately) in state and local taxes (SALT), including property taxes.

3. Points Paid on Your Mortgage ( Same caps as point 1)

• If you paid "points" to reduce your mortgage interest rate, these may be deductible in the year they were paid (or over the life of the loan in some cases).

4. Mortgage Insurance Premiums

• Premiums for private mortgage insurance (PMI) or government-backed mortgage insurance (like FHA or VA loans) may be deductible, subject to income limitations.

5. Home Office Deduction

• If part of your home is used exclusively and regularly for business purposes, you may deduct a portion of expenses like utilities, rent (if applicable), and depreciation

6. Energy-Efficient Home Improvements

• Tax credits are available for certain energy-efficient home upgrades, such as installing solar panels, energy-efficient windows, doors, or HVAC systems.
• The Residential Clean Energy Credit provides a credit of up to 30% for renewable energy systems.

7. Capital Gains Exclusion

• When selling your home, you may exclude up to $250,000 ($500,000 for married couples) of capital gains if the property was your primary residence for at least two of the past five years.

8. Home Equity Loan Interest

• Interest on home equity loans or lines of credit (HELOCs) may be deductible if the loan proceeds were used to buy, build, or substantially improve the home that you live in.

9. Casualty Loss Deduction

• Losses from federally declared disasters may be deductible.

10. Medical Home Improvements

• If improvements were made to accommodate a medical condition (e.g., installing ramps or widening doorways), the cost may be partially deductible as a medical expense. 
• The deduction for qualified medical expenses may applies to the portion of those expenses that exceeds 7.5% of your Adjusted Gross Income (AGI)

11. Renting out part of your home?

• If part of your home is rented out, you may be able to deduct a portion of improvements, landscaping, maintenance, and repair costs for that area.

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Additional Notes

A. Rules and limits may apply

• Many deductions are subject to specific rules and limits, including income thresholds.
• You must itemize deductions on your tax return (Schedule A) to claim most of these benefits, except for the capital gains exclusion and energy-efficient tax credits.

 B. Some expenses that are not deductions

• Fire Insurance, Home Owners Insurance, HOA Fees, Etc  

C. State Homestead exemptions

• Some states offer a homestead exemption, which isn't related to income tax but helps reduce your property taxes.

D. Depreciation

• IRS gives a lot of benefits for Investors which are not available for homeowners. Deprecation which is available to investors are not available for homeowners

E. Offsetting Rental Income with proportionate Expenses

• If you are renting a part of your house - partial offset of income may be allowed upto $25K for people with Modified Adjusted Gross Income of less than 100K. (We will share more on this on a separate article in the investment section)

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Disclaimer: The information provided here is for general informational purposes only and should not be considered legal, financial, or tax advice. For personalized guidance tailored to your specific situation, always consult with a qualified professional such as a tax attorney, Certified Public Accountant (CPA), or other relevant tax experts.

Last updated on 2024 12 9