There are many perks to owning a home. You earn equity, enjoy greater privacy and flexibility than renters, and you may be able to reduce your taxes by capitalizing on homeowner tax breaks.
These include deductions for property taxes, mortgage interest, mortgage points, home office expenses, and mortgage insurance, as well as tax credits for things like energy-efficient upgrades if you qualify.
Here’s what to know about tax deductions versus credits, standard versus itemized deductions, and the most common homeowner tax breaks you may be eligible for.
Understanding Homeowner Tax Breaks
Homeownership is expensive — mortgage payments, property taxes, homeowners’ insurance, repairs, and maintenance all add up. Tax breaks can help offset some of those costs.
There are two types of tax breaks:
- Tax credits directly reduce your tax bill, dollar-for-dollar. If you owe $11,500 in taxes and qualify for a $600 energy-efficiency credit, your bill drops to $10,900.
- Tax deductions reduce your taxable income. If your gross income is $125,000 and you can deduct $30,000 in mortgage interest, property taxes, and home office expenses, you’re only taxed on $95,000.
The Standard Deduction vs. Itemized Deductions
When filing, you choose between the standard deduction (a fixed amount) or itemizing your individual deductions. The standard deduction for 2023 is $13,850 for single filers and $27,700 for married couples filing jointly.
If your itemized deductions add up to more than the standard deduction, it’s generally better to itemize. For example, if you qualify for a $10,000 SALT deduction, an $18,500 mortgage interest deduction, and a $2,500 charitable donation deduction, totaling $31,000, itemizing would save you more than the standard deduction. Consult a tax professional to determine which approach makes sense for your situation.
Commonly Claimed Homeowner Tax Deductions
- State and local taxes (SALT): You can deduct up to $10,000 in property and other state and local taxes if filing jointly or as a single filer ($5,000 if married filing separately).
- Mortgage interest: You can deduct interest paid on up to $750,000 of mortgage debt if filing jointly or single ($375,000 if married filing separately).
- Home equity loan or HELOC interest: Deductible only if the funds were used for a home improvement project.
- Discount points: Points paid to lower your mortgage rate are deductible. Loan origination points that don’t affect your rate are not.
- Mortgage insurance premiums: If your lender requires private mortgage insurance (or an equivalent), those premiums may be deductible.
- Qualifying home improvements: Certain necessary improvements, such as those that make a home more accessible to elderly or disabled residents, may be deductible. Most cosmetic improvements are not, though energy-efficient upgrades may qualify for a tax credit.
- Capital gains exclusion on home sale: If you sold your primary residence and lived in it for at least two of the past five years, you can exclude up to $250,000 in capital gains from taxation ($500,000 for married couples filing jointly).
- Charitable donations: Donations of cash or goods to qualified non-profits are deductible up to 60% of your adjusted gross income.
- Medical expenses: You can deduct the portion of qualified medical and dental costs that exceeds 7.5% of your adjusted gross income.
For more details on IRS rules for these deductions, see IRS Publication 530.
Commonly Claimed Tax Credits for Homeowners
- Energy-efficient home improvement credit: Installing qualifying energy-efficient doors, windows, insulation, AC, or heat pumps may earn you up to $3,200 in credits, available through 2032.
- Residential clean energy credit: Installing solar panels, a solar water heater, or other clean energy systems can earn a credit equal to 30% of the costs.
- Earned income tax credit: For lower-income filers, this credit ranges from $600 to $7,430 depending on income, filing status, and family size.
- Child tax credit: Families with children under 17 may qualify for up to $2,000 per child, with a portion potentially refundable.
- Child and dependent care credit: Covers a percentage of qualifying childcare or dependent care costs, up to 35% of $3,000 for one dependent or $6,000 for two or more.
- Lifetime learning credit: Claim 20% of the first $10,000 in qualifying tuition and fees, for a maximum credit of $2,000.
- American opportunity tax credit: Covers the first $2,000 in qualifying education expenses plus 25% of the next $2,000, for a maximum credit of $2,500.
How to Claim These Tax Breaks
To claim any of these deductions or credits, you’ll need to complete the appropriate IRS forms as part of your tax return. Keep thorough records throughout the year — receipts, mortgage statements, property tax bills, and documentation of home improvements can all be relevant when filing.
If you use tax software, enter all relevant information carefully. If you work with a professional preparer, ask them to walk you through where each deduction or credit was claimed and why, if something wasn’t.
The Bottom Line
Homeownership comes with real tax advantages, but only if you know what to claim and how. Review your expenses from the past tax year and evaluate whether itemizing deductions could save you more than the standard deduction. And because tax law is complex and changes frequently, consulting a tax professional for tailored guidance is always a smart move.
