Over $157 billion in mortgage interest was deducted by American homeowners in a single year, highlighting how valuable homeownership can be at tax time.
As a homeowner, you can deduct several major expenses on your income taxes, including mortgage interest and property taxes, potentially saving thousands of dollars each year. Most of these perks apply only if you itemize deductions on your return (instead of taking the standard deduction), but they can dramatically reduce your tax bill when you qualify.
- 🏠Top homeowner tax breaks – What deductions you can claim for your house (mortgage interest, property taxes, points, etc.)
- ❌ What to avoid – Common mistakes and non-deductible home expenses to skip
- 📊 Federal vs State – How deductions differ in California, Texas, and New York
- 📝 Real examples – How itemizing vs. standard deduction can affect your savings
- 📖 Jargon busting – Quick definitions of IRS terms (Schedule A, Form 1098, SALT, etc.)
Maximize Your Savings: Tax Deductions Homeowners Can Claim
Homeowners enjoy some valuable tax deductions under federal law. The key is that you generally must itemize your deductions (file a Schedule A form) to take advantage of these write-offs. Below are the major deductions you can claim as a homeowner:
Mortgage Interest Deduction
The mortgage interest you pay on your home loan is often the largest tax break for homeowners. If you have a mortgage on your primary residence (and even a second home), you can deduct the interest portion of your mortgage payments. This deduction is limited to interest on up to $750,000 of mortgage debt (or $375,000 if married filing separately). For mortgages originated before 2018, the older limit of $1,000,000 in debt still applies – meaning long-time homeowners may deduct interest on a larger loan balance.
This deduction can add up to significant savings, especially in the early years of a mortgage when most of your payment goes toward interest. For example, if you paid $10,000 in mortgage interest this year and you’re in the 22% tax bracket, that could knock $2,200 off your federal tax bill.
Your lender will send you Form 1098 each year showing how much mortgage interest you paid (and any points, discussed below) – you’ll use that to claim the deduction on Schedule A. Interest on a second home’s mortgage is also deductible, as long as your total mortgages are within the allowed balance limit.
Note: Interest on home equity loans or HELOCs can also be deducted as part of the mortgage interest deduction if the loan was used to buy, build, or substantially improve your home. (Interest on equity debt used for other purposes – like paying off credit cards – cannot be deducted under current law.) The combined total of your primary mortgage and any home equity loan is subject to the same $750,000 cap for interest deductions.
Property Tax Deduction (SALT)
Homeowners can deduct the property taxes they pay on their real estate each year as an itemized deduction. Property tax is part of the broader SALT deduction, which stands for State and Local Taxes. You’re allowed to deduct state and local property taxes plus either state income taxes or state sales taxes (whichever is larger for you) up to a combined limit of $10,000 per year (or $5,000 if married filing separately).
In practical terms, this means if you pay property taxes on your home (say $6,000/year) and also have state income taxes withheld from your paycheck (say $4,000), you can deduct those – but only up to the $10,000 cap. Many homeowners in high-tax states hit this SALT limit, especially if they pay significant property tax bills and state income taxes. Unfortunately, any state/local taxes above $10k can’t be deducted on your federal return due to this cap.
(For example, if you paid $12,000 in property tax alone, you’d still only deduct $10,000 of it federally.) This cap has made the property tax deduction less valuable for some homeowners since 2018, but it’s still a key benefit. Be sure to keep records (like property tax bills or escrow statements) of what you paid. Only taxes on real property (the assessed value of your home) are deductible – itemized charges on your tax bill for things like trash collection or local benefits are not; those are treated as non-deductible fees, not taxes.
Mortgage Points (Loan Origination Fees)
If you’ve bought or refinanced a home, you may have paid points to your lender. Points (also called discount points) are essentially prepaid interest – you pay a bit extra upfront to secure a lower interest rate on your mortgage. The good news: points are tax-deductible as if they were interest. Each point equals 1% of the loan amount (for example, on a $200,000 loan, one point costs $2,000).
If you paid points to purchase your primary home, the IRS typically lets you deduct the entire cost of those points in the year you paid them. That can give you a nice chunky deduction in the year you buy a house. (There are a few conditions – e.g. the loan must be secured by your home, and the points paid must be typical for your area – but most home purchase points meet the criteria for full deductibility.) Look at your closing disclosure or Form 1098 from the lender to see if you paid any deductible points.
For refinanced mortgages or points on a second home, the deduction is a bit different: you usually have to spread out (amortize) the point deduction over the life of the loan. For instance, if you paid $3,000 in points on a 30-year refinance, you’d deduct $100 per year for 30 years rather than all $3,000 at once. (If you refinance again or pay off the loan early, any remaining undeducted points can usually be deducted in that payoff year.) While not as immediate, it’s still a tax benefit over time. The key takeaway: don’t forget to deduct your points – they are essentially additional mortgage interest.
Home Office Deduction (If Self-Employed)
Do you use part of your home for business or work? If you’re self-employed or run a business from home, you may qualify for the home office deduction. This deduction allows you to write off a portion of many home expenses – not just mortgage interest and taxes, but also utilities, homeowners insurance, repairs, maintenance, and even depreciation of your home – proportional to the space used for business.
To claim a home office deduction, you must use a part of your home regularly and exclusively for business purposes. For example, if you have a spare room that is 100% your home office for your side business, and it’s, say, 10% of your home’s square footage, you can potentially deduct 10% of those eligible home costs. There are two methods: a simplified method (a flat $5 per square foot of the office, up to 300 sq ft, so max $1,500 deduction) or the regular method (actual expense proration as described). You’d claim this deduction on your business tax form (Schedule C or F for sole proprietors, or Form 8829 for the detailed method) rather than on Schedule A.
Important: The home office deduction is not available to W-2 employees working from home for an employer. If you’re a remote employee (telecommuting), current tax law does not let you deduct home office expenses. This deduction only applies to self-employed individuals, independent contractors, or gig workers who use their home workspace for their business. But for those who qualify, it can be a valuable way to deduct part of your rent (if you rent) or home costs (if you own). Note that if you own your home, claiming depreciation for a home office could affect taxes when you sell (since depreciation taken may need to be “recaptured”). It’s a more complex deduction, so keep good records and consider consulting a tax professional if you’re taking a sizable home office write-off.
Medically Necessary Home Improvements
While personal home improvements aren’t deductible in general, there’s an exception for upgrades that are medically necessary. If you install special equipment or make modifications to your home for medical reasons – for example, adding wheelchair ramps, widening doorways for accessibility, installing a stair lift, or modifying a bathroom for someone with a disability – you might be able to deduct those costs as part of the medical expenses deduction.
To qualify, the expense must primarily be for the well-being of you, your spouse, or a dependent with a medical necessity. You can include the cost of installation and equipment as a medical expense. However, you must reduce the deductible amount by any increase in the home’s value that results from the improvement. For instance, if you spend $20,000 to install an elevator in your home for medical reasons and it increases your property value by $15,000, you can only count the remaining $5,000 as a medical expense.
Medical expenses, including these home improvements, are only deductible to the extent they exceed 7.5% of your Adjusted Gross Income (AGI), and you have to itemize to claim them. In practice, this deduction is most useful for those with very large medical costs in a year (relative to income). It’s a niche benefit, but important to know about if your home needs changes for health reasons.
Casualty and Disaster Losses
If the unthinkable happens – your home is damaged or destroyed due to a sudden event – you may be able to deduct some of those losses. Casualty losses (from events like hurricanes, floods, fires, earthquakes, theft, or vandalism) used to be broadly deductible, but under current law you can only deduct such losses if they occurred in a federally declared disaster area. This typically means a major disaster officially declared by the President (for example, a hurricane that gets disaster status, or a wildfire in a declared disaster zone).
Even when allowed, the casualty loss deduction has some hurdles: you can only deduct the portion of the loss that isn’t covered by insurance or reimbursements, and then only the amount that exceeds a certain threshold. Specifically, you must subtract $100 from each casualty event, and then you can deduct the remaining loss only to the extent it exceeds 10% of your AGI for the year. (Example: if your AGI is $100,000, the first $10,000 of net loss doesn’t give you a tax benefit – only losses beyond that count, after the $100 per event reduction.) You claim casualty losses on Form 4684 and then on Schedule A as an itemized deduction.
For everyday mishaps (a burst pipe that floods your basement, a theft of some property from your home, etc.) that are not in a federal disaster, you unfortunately can’t deduct those losses under current rules. It’s only the big disaster-related losses that potentially qualify. If you do experience a qualified disaster loss, Congress sometimes passes special tax relief for specific events (allowing you to deduct more or bypass the 10% AGI floor, for instance), so be sure to check the IRS guidance for disaster relief in the year it happens. Generally, the casualty loss deduction is a form of financial relief at tax time for those who’ve suffered major property damage beyond what insurance covered. We hope you never need to use it, but it’s there if you do.
Steer Clear: Home Expenses You Can’t Deduct
We’ve covered the good news – now for the gotchas. Not everything associated with homeownership is tax-deductible. It’s important to avoid trying to deduct expenses that aren’t allowed, as the IRS could disallow them (and nobody wants an audit or tax bill surprise). Here are common home-related expenses that cannot be deducted on your personal tax return:
- Homeowners insurance premiums: The cost of your homeowner’s or hazard insurance policy is not deductible. This is a personal expense to protect your property, not a tax-favored item. (The only time home insurance might be deductible is if you rent out the property or use part of your home for business – then it becomes a business expense proportionally. For your own residence, it’s not deductible.)
- Mortgage principal payments: When you pay your monthly mortgage, you’re paying back the loan principal and interest. Only the interest portion is deductible. The money that goes toward your loan principal is like putting cash into your home’s equity – it’s not an expense, so the IRS won’t let you deduct it. In short, you can’t deduct the amount that actually reduces your debt, only the interest charge (as discussed earlier).
- Home repairs and improvements: The costs of maintaining or improving your home are not deductible. If you paint your house, fix a leaky roof, remodel the kitchen, or pay a contractor to upgrade your electrical system, those expenses cannot be written off (unless it’s a qualified medical modification or a business use portion, as noted above).
- However, keep track of home improvement expenses – while you can’t deduct them now, they can be added to your home’s cost basis. That will reduce any taxable gain when you eventually sell the house. So, while you can’t get a tax break for a new deck or a renovated bathroom this year, you might benefit by paying less capital gains tax later if your home’s value has gone up. Routine repairs and maintenance (fixing plumbing, replacing a broken window) likewise aren’t deductible.
- Utilities and condo/HOA fees: Regular housing bills like electricity, water, gas, garbage, internet service, and so on are personal expenses and not tax-deductible. Similarly, if you pay condominium association fees or homeowners association (HOA) dues, those payments are not deductible on your federal tax return. (Again, an exception: if you have a home office or rental portion, a percentage of utilities or HOA fees could be deductible business expenses. But for your personal use of your own home, no deduction.)
- Private Mortgage Insurance (PMI): Many homeowners pay PMI when their down payment is below 20%. In the past, PMI premiums were tax-deductible (with income limitations), but that provision has expired. As of now, premiums for PMI or other mortgage insurance (e.g. FHA loan mortgage insurance premiums or VA funding fees) are not deductible for most taxpayers. Keep an eye on Congress – sometimes they renew this deduction – but unless it’s reinstated, you cannot deduct PMI on your current return.
- Most closing costs: The various fees you pay when closing on a home purchase are generally not deductible. This includes costs like appraisal fees, title insurance, attorney fees, deed recording charges, transfer taxes, and surveys. These are all part of the cost of buying the property (some can be added to your cost basis, but none are deductible as expenses). One big exception we already covered is points – points paid on a purchase mortgage are deductible.
- Also, if your settlement papers show you reimbursed the seller for property taxes they had prepaid for part of the year, that portion of property tax is deductible by you (since you effectively paid the tax). But aside from those, don’t expect a tax write-off for closing expenses. Even moving expenses to a new home are not deductible for most people (that deduction was eliminated for everyone except active-duty military moves). So, when budgeting for a home purchase, remember that closing costs will affect your wallet but not your taxes.
- Rent (for personal use): If you’re a renter (not owning a home yet), generally your rent is not deductible on your federal return. This isn’t directly a homeowner issue, but worth noting for comparison – owning a home gives you potential deductions (as detailed above), whereas paying rent does not. (One small caveat: a few states offer a renter’s tax credit or deduction, but there’s no federal deduction for rent you pay.) Similarly, if you lease land (common in some mobile home situations or co-ops), those lease payments are not deductible as “rent” for your residence.
In short, don’t try to deduct personal home expenses that fall outside the well-defined categories of interest, property taxes, etc. A good rule of thumb: if it’s a routine bill or something that adds value to your own property, it’s likely not deductible. When in doubt, consult IRS publications or a tax advisor before writing off a home expense. It’s better to be sure than to get hit with a disallowed deduction later.
Your Tax Savings in Action: Homeowner Deduction Examples
To see how these deductions play out, let’s look at a few scenarios. The value of homeowner deductions can vary widely depending on your situation. We’ll compare two hypothetical homeowners to illustrate when itemizing deductions (listing out mortgage interest, property taxes, etc.) yields a benefit over taking the standard deduction.
| Scenario | Tax Outcome |
|---|---|
| Homeowner A (Itemizing) – A married couple with $20,000 in mortgage interest, $10,000 in property taxes, and $2,000 in charitable donations (total itemized deductions = $32,000). | Itemizes deductions: They can deduct about $32,000. This is better than the 2024 standard deduction for married couples ($29,200). By itemizing, they get ~$2,800 more deduction than standard, which could save them around $600–$700 in taxes (assuming roughly a 22% marginal tax rate). |
| Homeowner B (Standard Deduction) – A married couple with $5,000 mortgage interest and $7,000 property tax ($12,000 total potential deductions). | Takes standard deduction: Their $12,000 of would-be itemized deductions are far below the standard deduction ($29,200 for married filing jointly). They choose the standard deduction, claiming $29,200 instead. In this case, their home expenses didn’t exceed the standard threshold – meaning those costs don’t give any extra tax benefit. (They still got a large deduction, but it’s the same as any non-homeowner would get from the standard deduction.) |
As you can see, owning a home doesn’t automatically guarantee tax savings – it depends on the numbers. Homeowner A had enough in deductions to itemize and come out ahead, while Homeowner B did not. In fact, since the 2018 tax law changes that raised the standard deduction and capped SALT, many homeowners find the standard deduction is ultimately better unless they have a sizable mortgage or very high property taxes/other deductions.
Only about 10% of taxpayers itemize deductions today (down from ~30% before 2018), because the standard deduction has become so high. High-income and high-tax-area homeowners are more likely to itemize, but plenty of middle-class homeowners no longer find it worthwhile to itemize every year.
Tip: If your deductible expenses come close to the standard deduction, consider bunching certain deductions in alternate years. For example, you might make two years’ worth of charitable donations in one calendar year, or pay your property tax bill for next January in December, so that your itemized deductions in that year exceed the standard amount. Then you itemize that year and take the standard deduction the next. Strategic timing of payments can sometimes maximize your overall tax benefit as a homeowner.
Standard Deduction vs. Itemizing: What Homeowners Should Know
Standard Deduction is the automatic, no-questions-asked deduction that every taxpayer can take. It’s a fixed amount based on your filing status. For example, for the 2024 tax year, the standard deduction is $29,200 for a married couple filing jointly, $14,600 for a single filer (or married filing separately), and $21,900 for head of household. These amounts usually increase a bit each year for inflation. When you take the standard deduction, you do not list out individual expenses – you just claim that set amount. It’s simple and for many people yields a bigger deduction than if they itemized.
Itemized deductions are the specific expenses (like those homeowner deductions we discussed, plus others like charitable gifts or large medical expenses) that you can list on Schedule A if you choose to itemize. You would add up all your qualifying expenses and use that total in lieu of the standard deduction. The catch is, you can only benefit from itemizing if the total of all your itemized deductions exceeds your standard deduction. Otherwise, you’re better off taking the standard amount.
For homeowners, this essentially means: If your mortgage interest + property taxes (up to the SALT limit) + any other itemizables (charity, medical, etc.) is greater than your standard deduction, then itemizing will lower your taxable income more and save you money. If not, the standard deduction gives you the bigger write-off, and those individual home expenses, while technically “deductible,” won’t actually affect your tax bill.
When you have a big mortgage or live in a high-tax state, you’re more likely to have enough deductions to itemize. For instance, a young couple with a large mortgage might pay $25,000 in interest the first year, and say $8,000 in property/state taxes – that’s $33k, definitely above the standard deduction, so itemizing makes sense. On the other hand, an older couple who have paid off their mortgage (so no interest) and maybe pay $6,000 in property tax will fall well below the standard deduction; they effectively get the standard deduction and no extra benefit from those property taxes. This often happens to retirees who own their homes free and clear – their property tax and perhaps some medical or charity deductions likely won’t exceed the standard, so they stop itemizing.
A few more things homeowners should keep in mind regarding standard vs. itemized:
- Married vs. Single: The standard deduction for married couples is roughly double the single amount. Two single people might each be able to itemize if they own separate homes, but if they marry and file jointly, their combined standard deduction doubles, making it harder to exceed that threshold. Sometimes one spouse’s deductions get essentially “swallowed” by the higher joint standard deduction. (There’s an option for married couples to file separately to itemize individually, but that usually results in higher total tax and has many limitations.)
- Phase-outs: Currently, there is no phase-out of itemized deductions based on income (that was eliminated in recent tax law). So high earners can still take itemized deductions fully (aside from the specific caps like SALT). There used to be a “Pease” limitation that trimmed itemized deductions at very high incomes, but it’s not in effect for now.
- State Taxes: Even if you take the standard deduction on your federal return, some states have different rules. For example, New York allows you to itemize on your state return even if you didn’t itemize federally. In California, the state standard deduction is much lower than the federal, so many Californians who take the federal standard may still benefit from itemizing on their California state taxes. We’ll explore specific state differences next.
Bottom line: Evaluate each year which method gives you the bigger deduction. Tax software or your tax preparer can run both scenarios. Don’t assume that just because you bought a house you should itemize – check the numbers. Conversely, if you bought a house and your deductible costs skyrocketed, you might save more by switching from standard to itemizing that year.
State Tax Breaks: California vs. Texas vs. New York
Federal tax law applies to all U.S. homeowners, but at the state level the rules can vary. Some states follow the federal system closely, while others have their own twists. Let’s look at three populous states – California, Texas, and New York – and how each treats homeowner deductions:
| State | Homeowner Tax Deduction Nuances |
|---|---|
| California | Mortgage Interest: California generally follows federal itemized deduction rules but is more generous on mortgage interest. California allows deduction of interest on up to $1,000,000 of mortgage debt (vs. $750k federal limit), plus up to $100,000 of home equity loan debt interest, regardless of when the loans were taken out. This means California homeowners with big mortgages can deduct more interest on their state income tax than they could on federal. Property Taxes: California’s state income tax return allows itemized deductions, including property taxes you pay. The federal $10k SALT cap doesn’t directly limit California’s own deduction for property tax – however, you cannot deduct California state income taxes on the California return. (No state lets you deduct the state income tax you pay to itself.) Standard vs. Itemize: California’s standard deduction is much lower than the federal (around $11,000 for married couples, $5,500 single for 2024). As a result, many Californians who take the federal standard deduction still choose to itemize on their state return to deduct mortgage interest and property taxes. |
| Texas | No State Income Tax: Texas has no state income tax, which simplifies things – there is no state income tax return to file, so no itemized deductions at the state level at all. The tax benefits of homeownership for Texans are primarily on the federal return. Property Taxes: Texas is known for relatively high property taxes (since it doesn’t tax income, local jurisdictions rely on property tax). Texans can deduct their property taxes on their federal return as part of SALT (subject to the $10k cap). But because there’s no state income tax, they often deduct state sales tax (if itemizing federally) as the other part of SALT. Still, many Texas homeowners hit the $10k federal SALT limit just with property taxes alone. State Perks: While not an income tax deduction, Texas does offer a homestead exemption on property taxes for homeowners’ primary residence – this reduces the assessed value for property tax purposes (saving you money on the property tax bill itself, not on your income tax). There are also property tax exemptions for seniors, veterans, etc. These help reduce taxes you pay to the county, though they aren’t deductions on a tax return. |
| New York | Decoupled from Federal Limits: New York State has its own itemized deduction rules that in many ways still follow the old federal law (pre-2018). For instance, New York does not impose the $10k cap on SALT deductions on the state return – you can deduct the full amount of state/local taxes paid when itemizing for NY taxes. Also, New York allows mortgage interest deduction on up to $1 million of debt (and $100k of home equity debt interest), just like the old federal rules, regardless of the federal $750k cap. Itemize vs. Standard: NY allows you to itemize on your state return even if you took the standard on your federal. This means if you couldn’t itemize federally (because of the high standard deduction), you might still itemize for New York to deduct your property taxes and mortgage interest on the state level. New York’s standard deduction for state taxes is around $16,050 (married) / $8,000 (single), which is far lower than the federal amount, so itemizing often yields a benefit for homeowners on their NY state return. Local Taxes: New York City and some counties have their own taxes, but those are separate from homeowner deductions. NY State also has programs like the “STAR” credit/exemption for school property taxes for homeowners, which is actually a direct tax break (credit) on your property tax bill rather than an income tax deduction. For income tax, though, NY homeowners enjoy a more favorable playing field with no SALT cap and higher mortgage interest limits on the state return. |
Summary of States: Always check your own state’s tax rules. Some states conform fully to federal law (meaning they too have the SALT cap, etc., in their calculations), while others like NY or CA have unique provisions. Texas shows that in states without income tax, you won’t get state income tax deductions (because there’s no state tax to begin with), but you might benefit from other state-level relief. For California and New York, owning a home can give extra deductions on your state taxes beyond what you got federally. Make sure to prepare state and federal taxes with these differences in mind, so you don’t miss out on any state-specific tax break for being a homeowner.
Key Terms Every Homeowner Should Know
Taxes come with a lot of jargon. Here are some key tax terms and concepts related to homeownership, explained in plain language:
- IRS (Internal Revenue Service): The U.S. government agency that oversees tax collection and enforcement. The IRS makes the rules for what’s deductible and provides forms/instructions for filing your taxes.
- Schedule A: The tax form used for itemized deductions. This is where you list your deductible expenses (mortgage interest, property taxes, charitable donations, medical expenses, etc.) instead of taking the standard deduction. Schedule A is filed with your main tax form (Form 1040) if you choose to itemize.
- Standard Deduction: A fixed dollar amount that reduces your taxable income, which you can claim without listing any expenses. The amount depends on your filing status (single, married, etc.) and is set by law each tax year. You take the standard deduction or itemized deductions – whichever is higher. (For example, as noted, the standard deduction for a married couple is $29,200 for 2024.)
- Itemized Deductions: Specific expenses allowed by the IRS that you can subtract from your income if you forgo the standard deduction. Itemized deductions include things like home mortgage interest, property taxes (SALT), state income or sales taxes, charitable contributions, medical expenses above a threshold, and a few others. The total of these is reported on Schedule A. You would itemize only if the total of all itemized deductions is greater than your standard deduction.
- Form 1098: A tax form your mortgage lender sends you (typically by January) each year. It reports the mortgage interest you paid in the previous year, as well as any points you paid at closing and sometimes the property taxes paid through escrow. You use this information to fill out your Schedule A for the mortgage interest deduction. If you have multiple mortgages or lenders, you’ll get a 1098 from each.
- SALT (State and Local Taxes): An acronym referring to the itemized deduction for state and local taxes you pay. This includes state income taxes (or state sales taxes, if you choose that route) and local property taxes. The SALT deduction is currently capped at $10,000 per return on the federal level. It’s a major deduction for homeowners in states with high taxes, though the cap limits its impact.
- Tax Credit vs. Tax Deduction: A tax deduction reduces your taxable income (which then reduces your tax by your marginal rate). A tax credit, on the other hand, directly reduces your tax liability dollar-for-dollar. For example, a $1,000 deduction might save you $220 in tax if you’re in the 22% bracket, while a $1,000 credit would save you $1,000 in tax. Homeowners mainly get deductions, but there are also credits out there (for instance, credits for energy-efficient home improvements like solar panels). Credits are generally more powerful, but deductions can still yield big savings by lowering the income on which you’re taxed.
- Discount Points: Often just called points, these are upfront fees you pay to a lender to get a lower interest rate on your mortgage. One point equals 1% of the loan amount. Points are considered prepaid interest, so they are tax-deductible. If paid on a purchase mortgage for your primary home, you can usually deduct the full cost of points in that year. If paid on a refinance, you typically deduct them over the life of the loan.
- Home Equity Loan / HELOC: A home equity loan or Home Equity Line of Credit (HELOC) lets you borrow against the equity in your home (the value of the home minus any mortgage debt). For tax purposes, interest on home equity loans/HELOCs is deductible only if the loan funds were used to buy, build, or substantially improve your home. And even then, the combined total of your primary mortgage and home equity debt that you can deduct interest on is limited (generally up to $750k total, as mentioned). If you use a HELOC to, say, remodel your kitchen, the interest can be written off. If you use it to pay off credit cards or go on vacation, that interest is not deductible.
- Capital Improvement: An expense that adds to the value or useful life of your home – for example, adding a room, renovating the kitchen, or installing a new roof. These are not deductible when you spend the money, but they increase your home’s basis (the amount you’ve invested in the property). A higher basis means a smaller taxable gain if you sell your home for a profit in the future. (Most homeowners also have an exclusion for capital gains on a primary home – $250k for single, $500k for married – but keeping track of improvements is still wise in case your gain exceeds those limits or if the exclusion rules change.)
- Escrow: Many mortgage lenders set up an escrow account for your property taxes and insurance. You pay a bit extra with each mortgage payment, and the lender uses the escrow funds to pay your tax bills and insurance premiums when due. For deductions, remember: you can only deduct property taxes in the year they are actually paid to the taxing authority.
- Sometimes what you pay into escrow is slightly different from what gets paid out in that year due to timing or adjustments. Check the Form 1098 or your county tax receipts for the actual amount of taxes paid on your behalf. Insurance payments out of escrow (homeowner’s insurance) are not deductible (as covered above).
By understanding these terms and rules, you’ll be better equipped to navigate your homeowner tax benefits and responsibilities. Taxes can be complex, but knowing the vocabulary makes it a bit easier!
FAQ: Homeowner Tax Deductions
Q: Is mortgage interest tax-deductible for homeowners?
A: Yes. Interest on mortgages up to $750,000 is deductible if you itemize (loans before 2018 keep a $1 million cap). This includes interest on your primary home and one second home.
Q: Are property taxes deductible?
A: Yes. You can deduct state and local property taxes you pay, but the total of all state/local taxes is capped at $10,000 per year ($5,000 if married filing separately).
Q: Is homeowners insurance tax-deductible?
A: No. Premiums for a personal homeowners insurance policy are not tax-deductible.
Q: Can I deduct home repairs or renovations?
A: No. The cost of normal home repairs or improvements isn’t deductible on your taxes. (Such expenses may increase your home’s cost basis for future capital gains calculations, but they are not current deductions.)
Q: Can I deduct my home office expenses?
A: Yes – if you’re self-employed and use part of your home exclusively for business. (W-2 employees cannot deduct home office expenses under current law.)
Q: Are HOA fees or condo dues tax-deductible?
A: No. Homeowners association (HOA) fees and condo maintenance dues are not tax-deductible for a personal residence.
Q: Can I deduct private mortgage insurance (PMI)?
A: No. The tax deduction for private mortgage insurance premiums expired after 2021, so PMI is not deductible under current law.
Q: Are mortgage points tax-deductible?
A: Yes. Mortgage points (prepaid interest) are tax-deductible. Points paid on a home purchase are usually fully deductible in the year paid; refinance points are deducted over the life of the loan.
Q: Can I deduct mortgage interest on a second home?
A: Yes. You can deduct interest on a second home’s mortgage as long as the total of all your mortgages is within the $750,000 loan limit (and you itemize on your tax return).
Q: Do I need to itemize to deduct my home expenses?
A: Yes. Homeowner deductions like mortgage interest and property taxes can only be claimed if you itemize your deductions. If you take the standard deduction, you cannot separately deduct those home expenses.