Tax season is upon us, and with it comes some surprisingly good news for homeowners. A wide variety of tax deductions are available for anyone who owns their own home, so here’s a handy guide to homeowner tax deductions to help keep more cash in your wallet where it belongs this year.
What You Can Deduct
- Mortgage Interest – In most cases, the interest you pay on your mortgage is tax deductible up to $1 million. Mortgage interest is one of the largest tax deductions available to homeowners, and in many cases, mortgage interest on a second home is also deductible.
- Equity Loan Interest – You can deduct equity loan interest up to $100,000 or the total of your home’s current fair market value (whichever is smaller).
- Home Improvement Loan Interest – If you took out a loan to make home improvements, you can deduct the interest. The catch is that the loan must have been taken out to make “capital improvements,” meaning improvements that increase the value of your home.
- Points – If you paid “points” to get a better rate on your mortgage, these points are tax deductible.
- Property Taxes – Often referred to as “real estate taxes,” property taxes are fully deductible, including any taxes you may have reimbursed the seller for when you purchased your home.
- Home Office Deductions – If you work from home and use a portion of your home exclusively for business purposes (such as a home office) you may be able to deduct home costs related to that portion of your house.
- Selling Costs – If you decide to sell your home, you can reduce your taxable capital gain by the amount of your selling costs.
What You Cannot Deduct
- Monthly House Payments (Other than real estate taxes and home mortgage interest)
- Insurance (Other than mortgage insurance premiums)
- Utility Costs (Such as gas, water and electricity)
- Settlement Costs
- Forfeited Deposits and Down Payments
- Wages Paid for Domestic Help
To deduct any of the above, you must file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). A more detailed guide to homeowner tax deductions is available from the IRS website.