Homeowners take on a lot of financial responsibility. There’s the mortgage, taxes, and home maintenance, not to mention the cost of repairs. Fortunately, there are some tax breaks you earn as a homeowner. Learn the top tax breaks you may be able to use to help lower your tax liability.
One of the largest fees you’ll pay as a homeowner if you take out a mortgage is mortgage interest. In fact, for the first few years, you’ll primarily pay interest on your mortgage with a little principal thrown in for good measure.
You may be able to deduct the mortgage interest you pay each year if you:
- Have more deductions than the standard deduction ($12,200 and $24,400)
- You pay interest on your primary or secondary residence
- You used the loan to buy or substantially improve the home
- You can deduct interest on loans up to $750,000 if you file married and up to $375,000 if filing separate
Property Taxes (State and Local)
You can deduct up to $10,000 in property taxes paid to your state or county. This is the case whether you pay your taxes directly yourself or through an escrow account. Any funds you paid that year may be deducted. If you paid more than $10,000 in property taxes, you can’t write off any excess over $10,000.
If you paid points, whether origination points or discount points, you may be able to deduct them in the year you paid them. You must meet the following requirements in order to do so:
- You paid points on your main home (the one you live in)
- You paid an average amount of points for the area
- You report your income and expenses in the year you make/pay them
- The points aren’t for any other costs, such as appraisal, title, or attorney fees
- You paid the points at the closing
- The points are clearly shown on your settlement statement
Energy Efficient Changes
If you made significant energy-efficient changes to your home, you may qualify for a tax deduction. The deductions pertain to solar energy, including electric or water heating systems. The deducting goes through 2021, so the sooner you make the changes, the greater deduction you’ll receive.
- Equipment installed between January 1, 2017, and December 31, 2019 receives a 30% credit
- Equipment installed between January 1, 2020, and December 31, 2019 receives a 26% credit
- Equipment installed between January 1, 2021, and December 31, 2021 receives a 22% credit
Home Office Deductions
If you use a part of your home as your home office, you may be able to deduct the expenses for the office. Keep in mind that the portion of the home you use for your home office must be exclusively for business use. For example, if you work in your family room and that’s also where your TV is and where your family gathers, it doesn’t count. It must be a separate room used only for business.
You may deduct $5 per square foot of the space used just for this purpose up to 300 square feet. Before you take the home office deduction, it’s wise to talk to your tax professional.
Don’t overlook the benefits of the tax deductions for homeowners. Talk with your tax advisor to exhaust all possible deductions. While the Tax Cuts and Jobs Act increased the standard deduction, making it harder to itemize deductions, if you have enough write-offs, you may find that you can lower your tax liability even further.