10 Tax Deductions for Home Owners

Carolee Locklear
Published on January 23, 2017

10 Tax Deductions for Home Owners


The tax landscape changes yearly. Congress meets occasionally to review and adjust the tax code, so first-time homebuyers must keep on their toes to understand year-to-year tax changes.

The government provides tax breaks for homeowners as a means of getting people to buy homes. Homeownership offers multiple home tax deductions and other breaks that aren’t available to those who rent. If you bought your first home in 2016 — or you’re hoping to buy one in 2017 — it can pay to familiarize yourself and claim current deductions and credits.

1. Mortgage Interest Credit

Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. And all that interest is deductible, unless your loan is more than $1 million. Interest tax breaks don’t end with your home’s first mortgage. This credit is available for primary residences, as well as secondary residences. Or did you decide instead to get a home equity loan or line of credit? Generally, equity debts of $100,000 or less are fully deductible.

2. Points

If you paid points when you took out a mortgage for your home, you can take a tax deduction. In general, because points are considered pre-paid interest, you can’t deduct them fully in the year that you purchased the home. Rather, you get to deduct a portion of them each year over the life of the loan. Points can also be called loan origination fees, discount points, loan discount, or maximum loan charges. Points paid for refinancing can be deducted over the life of the new mortgage. Just divide the amount you paid in points by the number of years of your loan to calculate how much you can deduct each year.Tax2

3. Property Tax

The annual real estate taxes you pay on your home are also deductible. If you have a mortgage, you are probably paying your taxes through an escrow account. Look on your mortgage interest statement to see the total real estate taxes you paid. If you purchased your home in the tax year you’re filing for, you will also be able to deduct any real estate taxes you paid at settlement. So take a close look at your closing statement.

4. Interest on Home Equity Loans

If you’ve taken out a home equity loan or home equity line of credit, you can deduct the interest on up to $100,000 of what you borrowed. And it doesn’t matter how you use the money.

5. Home Energy Credits

If you’ve installed any renewable energy systems or equipment in your home, you could be eligible for the Energy Efficiency Property Credit. It’s a big tax deduction. Up to 30% of the cost and installation of equipment. This includes solar panels, wind energy, fuel cells, and geothermal heating systems. The equipment must be installed and operating by December 31, 2016 to be eligible. If you’ve been considering an investment in a renewable energy system, now is the time move.

6. Home Improvements

You cannot deduct the cost of home improvements. But keep your receipts anyway. When you sell your home, you can add the cost of those improvements to the price you paid for the home, thereby reducing your capital gains on the sale. That will be a meaningful tax break to you. And, of course, if you take a loan out to make home improvements, you can deduct the interest on that loan.

7. Home Office Deduction

For a home office to be eligible for this deduction it must be exclusively used on a regularbasis for your business. There is more than one way to calculate the expense, but the simplified option lets you deduct $5/square foot, up to 300 square feet. Many stipulations apply, so be sure to check with the IRS or your accountant before claiming this deduction.Tax1

8. Charitable Contributions

Donating money to charity isn’t just good for your soul; it’s also good for your taxes. Any time you make a contribution to a registered charity, you can deduct your donation on your return. All you need to do is retain a receipt or other proof of your donation. In fact, you can take a tax deduction for charity even if you don’t donate actual cash. As long as there’s a record of your donation, along with some proof of the donated item’s value, you can claim a deduction for unwanted goods you give away.

9. The PMI deduction

If you weren’t able to come up with a 20% down payment for your home, you probably got hit with PMI, or private mortgage insurance. PMI usually ends up equaling 0.5% to 1% of your home loan’s value, so if you take out a $200,000 mortgage, you can expect to pay anywhere from $1,000 to $2,000 in PMI. But while that extra expense is far from ideal, it could serve as a tax deduction if your income is low enough. Currently, you’re allowed to take a PMI deduction if your income is $54,000 or less as a single tax filer and $109,000 or less as a couple filing jointly. The deduction also starts to phase out at even lower income levels — $50,000 for single filers and $100,000 for couples filing jointly.

10. Renting Out Your Home

If you rent out your second home for 14 days or less over the course of a year, that rental income is tax-free—and there’s no limit to what you can charge per day or week. Score! You’ll want to figure out the number of days you rent your home and divide that by the total number of days your home was used—whether it was you or a renter staying there. (The total number of days that the home was vacant doesn’t fall into this equation.) For more details on rental property deductions –
Author: Jennifer Noonan

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