Being a homeowner comes with numerous benefits, including potential tax breaks. If these itemized deductions add up to more than the standard deduction, you can save a lot of money.
Here’s a list of six common deductions homeowners should know about.
1. Home Equity Loan Interest
Did you take out a home equity loan or home equity line of credit (HELOC)? If the money went toward renovations, repairs, or other home-related expenses, you can deduct the interest paid on that loan. You can also claim this deduction if you use the funds to buy or build another home.
2. Medical Home Improvements
Home improvement costs are deductible if the renovation helps a qualified household member with medical needs. For example, you might add a stair lift or widen the doorways for a dependent who uses a mobility scooter.
Unfortunately, there are limits. If the improvement is permanent and drives up your home’s value, you’ll have to subtract that increase from your deduction.
3. Energy-Efficient Home Improvements
Energy-efficient home improvements may limit your tax liability as well. If you upgraded your main residence after Jan. 1, 2023, check Form 5695 to see if your work qualifies for a tax credit.
The tax credit covers 30% of expenses like getting a home energy audit.
4. Mortgage Interest
Homeowners with a mortgage should look into the mortgage interest deduction. Every year, your mortgage servicer will send a Form 1098 detailing how much interest you’ve paid.
If you bought your home on or after Dec. 16, 2017, you can deduct:
- up to $750,000 for singles and married couples.
- up to $375,000 each for married couples filing separately.
However, if you purchased your home between Oct. 13, 1987, and Dec. 16, 2017, the limits rise to:
- up to $1 million for singles and married couples.
- up to $500,000 each for married couples filing separately.
5. Property taxes
Are your property taxes a heavy strain? You can deduct up to $10,000 in state and local taxes. You’re limited to half that amount if married and filing separately.
And remember, these limits apply to state and local taxes combined.
6. Discount Points
If you purchased discount points to lower your interest rate, you might be able to deduct the cost. Usually, that happens through a series of deductions throughout the life of the loan.
However, if you meet strict requirements, you can deduct the full amount of your discount points the year you buy them. A tax professional can help you see if you qualify.
IRS Standard Deduction
Remember, claiming these homeowner deductions only makes sense if their combined total is more than the IRS standard deduction. For tax year 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
The standard deduction reduces your taxable income by a set amount and is available to every taxpayer. If you choose to itemize your deductions instead, the standard deduction won’t apply.
Final Thoughts
Being a homeowner can come with very high costs. Make sure you keep track of all receipts related to home-related expenses throughout the year to make tax time easier. If the math is favorable, you can recuperate some of these costs by claiming homeowner deductions on your tax return.
However, you’ll need to determine if these deductions make sense for your situation and figure out the specific requirements and limitations of each.
We can help. At Kondler & Associates, CPAs, our experts understand the intricacies of homeowner tax deductions. Schedule a free consultation today and see how we can maximize your savings.
