With its homeowner tax breaks and perks, tax season is one of the few times you can get some cash out of your house instead of pouring money into it.
With the steady climb of home prices over the past decade, owning a house in the US is expensive — the Case-Shiller US National Home Price Index has set record highs for the past several years. And in additional to expensive down payments and mortgages, US homeowners pay an average of $17,459 every year for “hidden expenses,” according to the Real Estate Witch. All those expenses come with a silver lining, however — tax credits and deductions for your home that can lead to a bigger tax refund. For homeowners, learning as much as you can about your potential tax benefits can help you maximize your tax refund when you file your income tax return.
Most homeowners with mortgages know they can deduct payments toward their loan interest, but many tax deductions and tax credits involved in owning a house are less obvious. Learn about all the possible tax breaks for homeowners to get the biggest refund possible on your taxes.
For more on taxes, learn about the biggest tax credits and how to create an online IRS account.
Read more: File Early and Get Up to 20% Off Your 2023 Taxes With TurboTax
How can homeowners take tax breaks?
Most income tax benefits for homeowners are tax deductions, which are reductions to your taxable income. The less of your income that is taxed, the less money you pay in taxes.
When you file your tax return, you must decide whether to take the standard deduction — $13,850 for single tax filers, $27,700 for joint filers or $20,800 for heads of household or married filing separately — or itemize deductions, such as gifts to charity and state taxes.
To take advantage of homeowner tax deductions, you’ll need to itemize your deductions using Form 1040 Schedule A. Your decision to itemize will depend on whether your itemized deductions are greater than your standard deduction. All of the best tax software can quickly help you decide whether to itemize (as well as help you fill out all of the tax forms mentioned in this article).
Tax credits for homeowners don’t require you to itemize. They directly reduce the amount of taxes you owe, and you can usually get those credits whether or not you itemize deductions.
Mortgage interest deduction is a big tax break
Mortgage interest — or the amount of interest you pay on your home loan yearly — is one of the most common tax deductions for homeowners. It’s also often the most lucrative, particularly for new homeowners whose payments generally go more toward loan interest during the first years of a mortgage.
Homeowners filing taxes jointly and single tax filers can deduct all payments for mortgage interest on the first $750,000 of their mortgage debt, or mortgage debt up to $1,000,000 if you’re deducting mortgage interest from before Dec. 15, 2017. If you file married separately, you can deduct half those amounts — $375,000 or $500,000, respectively.
To deduct your mortgage interest, you’ll need to fill out IRS Form 1098, which you should receive from your lender in early 2024. You can then enter the amount from Line 1 on that Form 1098 into Line 8 of 1040 Schedule A.
Mortgage points can be deducted, too
You can buy mortgage points, also called “discount points,” when buying a house to decrease the interest on the mortgage. Each 1% of the mortgage amount that home buyers pay on top of their down payment generally reduces their interest rate by 0.25%, though the exact amount will depend on the lender and the loan.
Discount points can save you big money on a 30-year mortgage by lowering the total interest you’ll have to pay across decades, but they can also save you money on your taxes when you buy them. The IRS considers mortgage points to be prepaid interest, so you can add the amount paid for points to your total mortgage interest that’s entered on Line 8 of 1040 Schedule A.
Mortgage-interest tax credits can give new homeowners big money
Homeowners who have received a Mortgage Credit Certificate from a state or local government — usually acquired via a mortgage lender — can get a percentage of their mortgage interest payments back as a tax credit. Mortgage certificate credit rates vary based on states and can range between 10% and 50% up to a maximum credit of $2,000.
This homeowner tax tip is most effective if you are a first-time homeowner, which is generously defined as not living in a home that you’ve owned for the past three years. If you’re buying your first home, be sure to ask your lender or mortgage broker to see if you qualify for an MCC.
To file for your mortgage-interest tax credit, use IRS Form 8396. Remember, you don’t need to itemize deductions to claim tax credits.
Property taxes are deductible, but only in part
Local and state real estate taxes, more commonly called property taxes, can be deducted from your taxes, but at a far lower amount than before 2017.
Thanks to the Tax Cuts and Jobs Act of 2017, you can only deduct up to $10,000 combined from your property taxes and state and local income taxes. Before 2017, your entire amount of property taxes was deductible.
To claim your property tax deduction, you’ll need to track your annual property tax payments. Your real estate taxes might also be listed in Box 10 of Form 1098 from your mortgage lender. Enter your total amount of real estate taxes paid for the year in Line 5b of 1040 Schedule A.
Home office expenses can be deducted if you’re self employed
Homeowners who use any part of their house, apartment or condo “exclusively and regularly” for their own business or side gig can claim home business expenses using IRS Form 8829. These deductions are available to renters, too.
The easiest way to claim a home-office tax break is by using the standard home-office deduction, which is based on $5 per square foot used for business up to 300 square feet. The “regular method” for deducting a home office involves calculating the percentage of your home that is used for business. Both methods use Form 8829 for reporting.
Home-office deductions aren’t available to remote employees of companies.
Get 30% back on the cost of an electric vehicle charging station
Electric vehicle charging stations can give you money back on your tax bill. If you install any alternative energy charging station in your home, you get a maximum credit of 30% of the cost or $1,000 (whichever is smaller). File IRS Form 8911 to claim your tax credit for the money spent on clean energy installation.
