Homeownership is expensive. On top of your down payment, mortgage payment, and homeowners insurance premium, you’re responsible for maintaining your house and yard, which may cost hundreds of dollars each year.
Luckily, many homeowners qualify for tax deductions that can make the cost of becoming a homeowner a little more reasonable. The following key money-saving tax deductions could help lower your money stress.
The standard taxpayer deduction
Sometimes, the correct answer is the simplest.
As a taxpayer, you can either deduct expenses line by line to lower your taxable income, or you can opt to take the IRS’s standard deduction. You cannot choose both options — you must choose one or the other.
For the 2023 tax year, the IRS’s standard deduction is $13,850 for individuals (including married individuals filing separately) and $27,700 for married couples filing taxes jointly.
If the standard deduction lowers your taxable income more than itemizing your deductions, your accountant will probably recommend that you stick to the standard deduction rather than itemizing.
Keep that in mind while we walk you through the most common deductions homeowners can take advantage of. At the end of the day, you want to avoid throwing money away.
Medical expenses for disability-related home renovations
If either you or someone else living in your home requires disability accommodations, you might be able to write off certain accommodation-related home renovations as medical expenses. After all, major changes like adding wheelchair-friendly ramps to your home can cost a lot of money.
As long as these changes were made out of necessity (and not out of, say, personal preference, or to raise the value of your home), you can likely write them off as capital expenses on your tax return.
Property taxes are state and local taxes, not federal taxes, so the amount of money you pay in property taxes each year is determined by your city, county, and/or state.
That means homeowners in some states pay drastically more in property taxes than others. For instance, for the 2019 tax year, Hawaii’s state property tax was just 0.28% while New Jersey’s was 2.49%.
You can deduct up to $10,000 worth of taxes on your federal tax return, property taxes included. If you paid a few hundred dollars in property taxes this year, though, those taxes might not be worth claiming as a tax write-off compared to simply taking the standard deduction.
If your property tax bill is particularly high, talk to your accountant about deducting property taxes this year.
Other real estate property taxes
Own an investment property? Maintain a second home for your Airbnb side gig? You can write off taxes for those properties as well.
Just remember that the amount of taxes you can write off is capped at $10,000, which includes the total amount of property taxes paid on personal property and real estate, state income taxes, and federal income taxes.
Home mortgage interest
Home loan interest rates have been climbing steadily for at least a year.
As of August 2023, the average interest rate on a 30-year home loan is an astonishing 7.5% — which means homeowners who took out a recent loan could pay tens of thousands of dollars in home mortgage interest this year alone.
Fortunately, homeowners can deduct those mortgage interest payments from their taxable income. However, if you took out a loan on or after December 17, 2017, you can only deduct interest paid on your first $750,000 (if married filing jointly) or $375,000 (if filing individually married filing separately) worth of debt.
If you took out your loan at any date up until December 16, 2017, you can deduct interest paid on debt up to $1 million (if married filing jointly) or $500,000 (if filing individually).
Taking out a home equity loan or opening a home equity line of credit (HELOC) is a common method homeowners use to make big-ticket home renovations or necessary repairs.
Depending on how you use the funds received through your HELOC, you might be able to deduct the interest paid on the line of credit — but only if you used money from the loan to “buy, build, or substantially improve” (in the IRS’s words) your personal residence.
The same interest deduction limitations apply to HELOC interest as to home mortgage interest rates. Homeowners may only deduct interest incurred on their first $750,000 (or $375,000, depending on your filing status) worth of debt.
You should note that the $750,000/$375,000 cap is on property-related loan interest as a whole: It includes both the debt accrued through your mortgage loan and any subsequent HELOCs.
Mortgage (aka discount) points
Mortgage or discount points refer to a fee some borrowers pay to take out a mortgage loan.
The points are, in effect, upfront interest payments on a loan that hasn’t yet accrued that interest — and since home mortgage interest is tax deductible, so are mortgage points.
However, points have to meet certain requirements to qualify as tax deductible. For instance, mortgage points must be a standard practice implemented by many businesses in the area in which you took out your loan.
Home office costs
The IRS’s definition of a home office is fairly rigid: Your office has to be a space in your home used solely and entirely for your self-employment. (In other words, a room you refer to as the office but doubles as your library or entertainment room doesn’t fit the IRS’s definition).
At-home workers who earn their money exclusively from an employer do not qualify. If you work for an employer and have a home-based side hustle, your home office must be used solely for your side hustle to qualify.
There are two methods of calculating home office deductions. With the simplified method, you can deduct $5 for every square foot of your home office (with a maximum of 300 square feet, or $1,500).
Alternatively, you can deduct home office costs based on what percentage of your home is devoted to your office space. However, this method requires much more rigorous record-keeping and strict calculations.
An important note: If you use your office for your side gig and your
Homeownership is a heavy burden, both financially and otherwise — but you aren’t completely on your own when it comes to keeping your budget on track while caring for your home.
If you’re curious about other tax deductions you should be taking advantage of, reach out to your accountant or tax professional. They can give advice specific to your situation that can help you get the maximum tax return next April.