Understanding Homeownership Deductions
Homeownership offers various financial benefits, including potential tax deductions. However, it’s crucial to understand which expenses are deductible and which are not.
Deductible Expenses
- Mortgage Interest: Homeowners can deduct interest paid on their mortgage loans, subject to certain limits.
- Property Taxes: State and local real estate taxes are deductible, up to a limit of $10,000.
- Mortgage Insurance Premiums: Premiums paid for private mortgage insurance (PMI) are deductible.
Non-Deductible Expenses
- Homeowners’ Insurance: Premiums for homeowners’ insurance, including fire and comprehensive coverage, are not deductible.
- Principal Payments: Payments made towards reducing the principal balance of the mortgage are not deductible.
- Home Repairs and Improvements: Costs associated with home repairs and improvements are not deductible.
- Utilities: Expenses for utilities such as gas, electricity, and water are not deductible.
- HOA Fees: Homeowners’ association fees or condominium association fees are not deductible.
Mortgage Interest Deduction
Homeowners can deduct mortgage interest paid during the tax year. However, there are limits to this deduction. For mortgages originated after December 15, 2017, the limit is:
- $750,000 for individuals
- $375,000 for married couples filing separately
Property Tax Deduction
State and local real estate taxes are deductible, up to a limit of $10,000. This limit applies to the combined total of property taxes and state and local income taxes or sales taxes.
Mortgage Insurance Deduction
Premiums paid for private mortgage insurance (PMI) are deductible. PMI is typically required for loans with a down payment of less than 20%.
Other Considerations
- Itemized Deductions: To claim homeownership deductions, taxpayers must itemize their deductions on Schedule A of Form 1040.
- Standard Deduction: Taxpayers who do not itemize their deductions can still claim the standard deduction, which is a fixed amount that varies depending on filing status.
- Mortgage Interest Credit: Low-income homeowners may qualify for the mortgage interest credit, which reduces the amount of income tax owed.
Additional Resources
Everything you need to know about filing taxes as a new homeowner
FAQ
Can you write off a new home purchase on your taxes?
Can I use my tax refund to buy a house?
How much money do you get back on taxes for mortgage interest?
Do your taxes affect buying a house?
Can I claim tax benefits if I bought my first house?
If you bought your first house last year, then you probably don’t know what to expect when it comes to claiming your tax benefits. Now that you’re a homeowner, there are certain deductions you can claim on your taxes that could benefit your bottom line.
Can I claim a tax deduction if I buy a home?
The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points) . To deduct prepaid mortgage interest (points) paid to the lender, you must meet these
Does buying a house help with taxes?
It’s possible that buying a house can help with taxes — but only for tax filers who itemize their deductions. In 2020, the most recent year with data available, more than 87% of Americans took the standard deduction rather than itemizing. This signals that it may be unlikely you’ll have enough deductions for itemizing to make sense.
Can a homebuyer claim a tax credit?
This change could add a tax credit to the breaks that some homebuyers can claim. The First-Time Homebuyer Act of 2021 provides for a credit equal to 10% of the purchase price of your home, up to a $15,000 limit ($7,500 for married filing separately). As the name implies, you must be buying your first home to qualify.