Homeowner tax deductions: what can you deduct?

Updated March 22, 2024  |   Published January 30, 2023

Categories:  
• Home Lending
• Taxes

If you are a homeowner looking for a tax break, you may be able to find one by itemizing your deductions. We checked the official IRS website and found there are several homeowner tax deductions that could save you money.

 

1. Interest

You can deduct both mortgage interest and home equity loan interest on your taxes. According to the IRS, a single filer or married couple filing jointly can deduct up to $750,000 of mortgage interest, and married couples filing separately can deduct $375,000 each. With home equity loan interest, you can only deduct the interest on funds that were used to make home improvements. The max amounts you can deduct on home equity loan interest are the same as mortgage interest.

 

2. Property taxes

Homeowners can deduct up to $10,000 of their property taxes if filing jointly and $5,000 if filing separately.

 

3. Home improvements

You can deduct only what is classified as a “necessary” home improvement on your taxes. According to IRS Publication 523, to qualify as a necessary improvement, the task must “add value to your home, adapt it to new uses, or prolong its life.” Some examples that count are a new roof, attic insulation, or duct work. Some examples that don’t count are painting, replacing broken hardware, or any improvements with a life expectancy of less than one year. Click the link above or check with your tax preparer for a full list of what can be classified as “necessary.”

 

4. Home office expenses

If you are a self-employed business owner running your business from a home office, you may be able to deduct some of the expenses needed to maintain that space. Only if you use your office regularly and exclusively can you qualify for these deductions. Employees working from home for another company cannot make these deductions. Visit the IRS website for more info.

 

5. Capital gains

Capital gains are any profits you make on your home when you sell it. If you bought a home for $250,000 and sold it for $300,000, then you would have a capital gain of $50,000. If you have owned and used your home as your primary residence for at least two years in the five-year period prior to its sale, you are eligible to deduct your capital gains. Single filers can exclude up to $250,000 of capital gains from their income while joint filers filing with their spouse can exclude up to $500,000.

 

6. Private Mortgage Insurance (PMI)

For tax years 2018-2021, you could deduct your PMI payments on mortgages that were taken out after January 1, 2007. The deduction was no longer available as of tax year 2022, and has not changed for 2023 taxes.

 

Standard deductions

Always check with the official IRS website or your tax preparer to make sure you can qualify for all that you would like to deduct, as there are limitations to each item. It’s important to note that itemizing your deductions would only be beneficial to you if the total amount of these items will equal more than the standard deduction. For filing 2023 taxes, the standard deductions are:

• Married couples filing jointly – $27,700
• Single taxpayers and married individuals filing separately – $13,850
• Heads of households – $20,800

If the total of your deductions do not meet these amounts, then it would make more sense for you to take the standard deduction.

 

Source: irs.gov.