Tax Deductions for Homeowners: 6 Tax Breaks You Should Know
Homeownership offers many financial benefits, from leaving behind the rental market to enjoying long-term comfort. It’s also a great way to save on your taxes with a variety of tax deductions that are available specifically for homeowners.
We’ll explore 6 important homeowner federal income tax deductions and their basic eligibility criteria so you can find the best deductions for your home. Then we’ll compare the standard deduction and itemized deductions to help you save more money on your income taxes.
Key Takeaways
- Homeowner tax deductions can help you reduce your overall tax liability.
- You can choose between claiming the standard deduction and itemizing your deductions.
- Taxpayers must itemize deductions on Schedule A (Form 1040) to claim home expenses.
- Homeowner tax deductions include mortgage interest, home equity interest, and state and local real estate taxes.
- Some home expenses like home insurance, utilities, and internet are not tax-deductible.
- Keeping accurate records makes it easier to claim all your eligible deductions on your income taxes.
Table of Contents
- Understanding Tax Deductions and How They Benefit You
- Standard vs. Itemized Deductions
- Top Tax Deductions for Homeowners
- Common Non-Tax Deductible Homeowner Expenses
- Tips for Homeowners to Save Money at Tax Time
- Streamline Your Homeowner Taxes with FreshBooks
- Frequently Asked Questions
Understanding Tax Deductions and How They Benefit You
Tax deductions are ways to reduce your overall taxable income. When you claim a deduction, you subtract that amount from your total taxable income to pay less on your final tax bill.
Homeowners can claim several homeowner tax deductions to lower their taxes. These include things like claiming the amount you paid in mortgage interest, home equity loan interest, mortgage points, and more.
Many homeowners are eligible to claim multiple homeowner tax deductions. Adding all of these deductions together can amount to significant tax savings.
Standard vs. Itemized Deductions
There are 2 main ways you can claim deductions—you can either choose to take the standard deduction or you can itemize your deductions.
The standard deduction is a set amount available to almost all US taxpayers. It’s quick and easy to claim, making it a popular choice for many people. The amount is adjusted for inflation each year.
The other option is to itemize your deductions, meaning you’ll add together all of the different tax deductions you qualify for. This is a bit more time-consuming, but it can pay off if you’re eligible for a lot of deductions.
Itemizing your deductions is often the best fit for homeowners since there are several homeowner deductions available. The best way to decide whether to claim the standard deduction or itemized deductions is to add together all of your itemized deductions and compare them to the standard deduction amount. Then you choose the greater amount.
How Itemizing Deductions Can Benefit Homeowners
Itemizing your deductions can offer greater tax savings than claiming the standard deduction. For 2023, the standard deduction amounts are:
- $13,850 for individuals and married filing separately
- $27,700 for married couples filing together
- $20,800 for heads of households
If you’re currently paying interest on a mortgage or home equity loan, or if you pay a high amount of property taxes, these deductions may exceed the amount of the standard deduction. For homeowners who are eligible to claim multiple homeowner tax deductions and other deductions, like medical expenses or charitable contributions, itemizing can quickly add up to more than the standard deduction amount.
Top Tax Deductions for Homeowners
Discover the top tax benefits for homeowners to help you reduce your overall tax bill.
Mortgage Interest
One of the most significant tax deductions available to homeowners is the mortgage interest tax credit. Every time you make a mortgage payment, a certain percentage goes to paying the interest on your mortgage. You’re able to claim this percentage as a tax deduction, with certain eligibility requirements.
The year you took out your mortgage will determine how much mortgage interest you’re eligible to claim.
For example, on mortgages taken out after December 16, 2017, you can claim the interest on mortgages up to $750,000. Your bank will send you a statement outlining your mortgage interest payments for the year so you can make the most of your deduction.
Home Equity Loan and Line of Credit Interest Deduction
Home equity loans and line of credit interest deductions function similarly to the mortgage interest deduction. If you’ve used your home as collateral to take out a home equity loan or line of credit, you can claim the interest on that loan as a deduction in certain situations.
Some limitations apply: For example, you can only claim the interest if you used the loan to make improvements to your home. The mortgage interest and home equity loan interest are also added together for the maximum amount, meaning that if you’ve already claimed the full amount of the mortgage interest deduction, you won’t be able to claim any more from the home equity loan interest deduction.
Real Property Taxes
As a homeowner, you pay annual state and local real property taxes on your home. The property tax deduction helps you recover this payment up to a certain limit.
If you’re married and filing together, you can claim the property tax deduction up to $10,000. For single filers or married couples filing separately, you can deduct up to $5,000.
Depending on where you live and how much you pay in property taxes, this deduction can be a significant addition to your itemized deductions total.
Mortgage Points Deduction
The term “points” describes certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discounts, or discount points.
Mortgage points are a system to lower the total amount of interest you pay on your mortgage loan. When you take out your mortgage, you may be able to buy some mortgage points. Each point is worth 1% of the mortgage loan.
The mortgage points deduction allows you to deduct the cost of these points. You’re not usually able to deduct the full amount in the year they were paid. Because points are prepaid interest, you can claim them ratably over the life of the loan.
Amounts charged by the lender for specific services connected to the loan aren’t interest and therefore don’t qualify as deductions. Examples of these charges include:
- Appraisal fees
- Department of Veterans Affairs (VA) funding fees
- Mortgage insurance premiums
- Notary fees
- Preparation costs for the mortgage note or deed of trust
Home Office Deduction
If you’re self-employed and work from home part or all of the time, you may be eligible to claim a deduction for your home office space and expenses as an itemized deduction.
There are certain requirements for the home office deduction. For example, you must use the space exclusively for work and it must be used regularly. 1 This deduction is only available to people running their own businesses; if you work from home for your employer, you’re not eligible to claim this deduction.
Energy-Efficient Upgrades and Renewable Energy Credits
If you make energy-efficient upgrades to your home, you may be able to claim some of the costs through the residential clean energy credit and the energy-efficient home improvement credit.
The residential clean energy credit allows you to claim 30% of the cost of qualified clean energy upgrades installed between 2022 and 2032. This includes things like wind, solar, and battery storage. 2
The energy-efficient home improvements credit also offers 30% on certain expenses, including home energy audits, heat pumps, and energy-efficient windows and doors. 3
Ready to make your homeowner tax deductions even easier? The video below takes you through how FreshBooks can simplify your tax filing with beginner-friendly tax preparation software.
Common Non-Tax Deductible Homeowner Expenses
Homeowner tax deductions are a great way to reduce your taxable income, but there are a few common homeowner expenses that can’t be deducted. These include:
- Home insurance and mortgage insurance premiums: Although you can deduct interest from your mortgage, mortgage and home insurance are not classified as deductions.
- Utilities and Internet: Although these may be necessary for a home business, the only thing that qualifies for the home office deduction is the percentage of space used for the office itself.
- Mortgage refinancing costs: When you take out or refinance a mortgage, you’ll usually need to pay for credit reports and appraisal fees. You can deduct the interest on your new mortgage, but not these additional fees.
Tips for Homeowners to Save Money at Tax Time
Make the most of your homeowner tax deductions with helpful tips for saving money when it comes time to pay taxes.
Keeping Records
Keeping clear records is one of the easiest ways to save money at tax time. It also makes it much easier to claim your itemized deductions—instead of hunting for receipts, you’ll already have everything organized.
It’s a good idea to keep a record of every expense related to your home. Even though you may not be able to claim everything, detailed records let you quickly scan through your expenses to make the most of your deductions. Some examples of homeowner documents that you should save include:
- Mortgage payment statements
- Home equity loan statements
- Receipts for mortgage points
- Property tax statements
- Receipts for home improvements and repairs
Consulting a Tax Professional
It’s easy to claim most homeowner tax deductions on your own, but sometimes it’s best to call in an expert for complex tax situations. Even if you feel well-equipped to manage your real estate taxes, consulting a professional can help you claim even more tax benefits.
If you’re not sure how much mortgage interest you’re eligible to claim or if you have questions about how and when to claim a mortgage points deduction, a tax professional can help. It’s well worth the consultation fee if they can help you save a significant amount in homeowner tax deductions.
Streamline Your Homeowner Taxes with FreshBooks
Owning your own home can help you save money in many ways, including saving on your taxes. Homeowner tax deductions like the property tax deduction, mortgage interest deduction, and energy improvement deduction can easily add up, lower your taxable income, and save you a significant amount.
FreshBooks tax accounting software makes it easy to keep track of all your home expenses so you can claim your eligible tax deductions. Try FreshBooks for free to discover how the right accounting software can make tax filing a breeze.
FAQs About Tax Deductions for Homeowners
Learn more about claiming tax deductions for homeowners with frequently asked questions about home expenses, mortgage interest, homeowners insurance, and more.
How much of my home expenses can I write off?
If you’re eligible for all the homeowner tax deductions, you can write off a large portion of expenses for mortgage interest, property taxes, home equity loan interest, and more. Remember that some expenses like home internet, utilities, and home insurance aren’t deductible.
What deduction can I claim without receipts?
You can usually claim the home office deduction without receipts. You can use IRS Form 8829 to calculate your home office deduction and claim it on your taxes without any additional receipts as proof.
Is the mortgage interest 100% tax deductible?
Mortgage interest is 100% tax deductible up to the annual limit. For mortgages taken out after December 16, 2017, you can claim interest on the first $750,000, or $375,000 for individuals filing separately. There are some higher limits for mortgages taken out before 2017. 4
Is homeowners insurance tax deductible?
Homeowners insurance is not tax deductible. While there are many deductions available to homeowners, you can’t deduct the cost of home insurance premiums or mortgage insurance. You can deduct mortgage interest and home equity loan interest.
Article Sources:
- IRS, How small business owners can deduct their home office from their taxes
- IRS, Residential Clean Energy Credit
- IRS, Energy Efficient Home Improvement Credit
- IRS, Publication 936 (2023), Home Mortgage Interest Deduction
About the author
Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.
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