10 Tax Breaks Every Homeowner Should Know About

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You probably know that owning a home is a sign of the American Dream, but let’s be honest, it’s a lot of bills, and not a lot of benefits. With mortgage payments, property taxes, and the occasional unexpected ‘surprise’ roof repair, it’s easy to feel overwhelmed. But here’s the silver lining: there are some amazing tax breaks out there that can alleviate the burden.

Whether you’re a first time buyer or, well, just a seasoned homeowner, it’s important to understand these tax benefits. If you know where to look, they’re like hidden treasures. And the good news? They don’t require a finance degree to take advantage of them: just a little know how and some smart planning.

Mortgage Interest Deduction

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One big one for homeowners is the mortgage interest deduction, especially when you’re just starting out and much of your payment goes toward interest. If you compile your tax deductions, you can deduct the interest on your home loan. Some people refer to it as getting a thank you note from Uncle Sam for paying off your house. If you bought your home before 2018, you can get a break on your mortgage up to $1 million, but if you bought after, the break on mortgages is up to $750,000.

Property Tax Deduction

If you dread paying property taxes every year, there is a silver lining. Homeowners who itemize deductions can claim up to $10,000 in property taxes they paid during the year. The Tax Policy Center says this deduction saved American homeowners an estimated $5 billion in 2022 alone. This is a big help, especially in states where property taxes are through the roof. While paying your tax bill might still smart, at least you will have a little break come April.

Home Improvements That Are Energy Efficient

Do you want to upgrade the windows in your home or add solar panels to the roof? These improvements not only lower your energy bills, they may also earn you a sweet tax credit. There are federal incentives for eco friendly upgrades such as a 30 percent tax credit for installing a solar energy system. Plus, with energy costs always on the rise, those savings can accumulate over time.

Home Office Deduction

For those who are working from home, the new normal, the IRS has a perk. If you work only in a certain part of your home, you can deduct associated expenses, such as utilities and internet. If you’re logging full-time hours or just moonlighting, this deduction can help your extra hours at your dining table feel more rewarding.

Capital Gains Exclusion

Selling your home can be both exciting and stressful, but here’s some good news: That means you may not owe taxes on all that profit. According to Investopedia, if you have lived in your home for at least two of the past five years, you can exclude up to $250,000 of capital gains from your income if you’re single, or $500,000 if you’re married. It’s a great way to keep more cash in your pocket if and when you need to move on.

Medical Home Improvements

Expenses for home modifications for medical purposes, for you or a family member (for example from adding a wheelchair ramp to the home or making doorways wider) could be tax deductible. These costs are considered medical expenses by the IRS and, if they exceed 7.5% of your adjusted gross income, you can deduct them. A practical win at turning challenges into comfort.

Home Equity Loan Interest

If you used your home’s equity in order to do major renovations or to take care of other important expenditures, the interest on that loan could be deductible. As long as the money went towards improving your home, personal expenses like vacations don’t count. It’s a little thing to lessen the burden of borrowing.

Casualty Loss Deduction

You don’t want to think about disasters, but if your home is damaged by hurricanes, earthquakes, or fires, you may be able to claim a casualty loss deduction. This only works if the loss ties to a federally declared disaster and you’ve used up insurance reimbursements. This is not a deduction anyone wants to make, but it’s there if you do.

Mortgage Insurance Premiums Are Deductions From Your Mortgage

There’s even a tax break if you’re paying private mortgage insurance (PMI) because you couldn’t put down 20 percent on your home. PMI premiums are deductible by homeowners with an adjusted gross income of less than $100,000. For an otherwise frustrating expense, it’s a small consolation.

Points Paid on Your Mortgage

When you bought your home, did you pay points to lower your mortgage interest rate? Those points are fully deductible in the year you paid them or over the life of the loan. It’s a lesser known benefit but can help save you money in the long run. But if you refinanced your mortgage, the rules are a little different, check your paperwork or a tax expert.

Disclaimer: This list is solely the author’s opinion based on research and publicly available information.