The tax benefits of owning a home: must-know deductions and secrets
If you own a home, make sure you don’t miss any tax deductions
In 2017, the Tax Cuts and Jobs act was passed and signed into law. The law altered a significant portion of the U.S. tax code, including a portion pertaining to homeownership. The act increased the standard deduction, which can affect how you take advantage of the tax benefits of homeownership. Keep reading to learn more about what to know about tax breaks as a homeowner.
Key insights
- Knowing your specific filing status will impact the maximum limit on tax deductions.
- For most homeowners, taking a standard deduction is the best option.
- Seemingly unrelated expenses, such as a home office and medically necessary improvements, can also be deductible.
What is a home deduction?
A home deduction is a type of tax deduction that is available to homeowners. The deduction lowers taxable income and is based on certain expenses incurred while owning and maintaining a home. Note that in order to qualify for any home deductions, the home must be your primary residence. The deductions can be a major benefit for filers as they can minimize overall liabilities while also maximizing potential refunds.
Examples of home deductions include mortgage interest, property tax payments and qualified home improvements. There are also two different types of deductions: standard and itemized. A standard deduction is a lump-sum deduction available to you, with the sum variable based on your filing status. In contrast, an itemized deduction is a series of deductions — variable in value and limits — based on individual items and expenses relating to your home.
What affects my home deduction?
Your filing status is the principal variable that affects your home deduction. Without knowledge of your filing status, you may end up deducting too much — resulting in some tax issues with the IRS.
The IRS recognizes these filing statuses:
| Filing status | Description |
|---|---|
| Single | Unmarried, divorced or legally separated taxpayer |
| Married filing jointly | Married taxpayer filing a joint return with their spouse |
| Married filing separately | Married couple filing separate returns |
| Head of household | Unmarried taxpayer who meets special requirements, such as paying more than half the cost of maintaining a home for both themself and a qualifying person who’s lived in the home for a half year |
| Qualifying widow(er) | Taxpayer who has a dependent child and whose spouse died during previous two years |
Homeowner deductions for tax year 2022
Below is a chart listing the standard deduction limits for this and the next tax year(s). The limits are arranged by the filing statuses introduced above.
| Filing status | 2022 standard deduction | 2023 standard deduction |
|---|---|---|
| Single | $12,950 | $13,850 |
| Married filing jointly or qualified widow(er) | $25,900 | $27,700 |
| Married filing separately | $12,950 | $13,850 |
| Head of household | $19,400 | $20,800 |
In addition, there is another standard deduction available only to people who are either 65 or older or blind. The deduction for 2022 is $1,750 for those with single or head of household status, and $1,400 for those with married taxpayers or qualified window(er) status.
If filers choose not to take standard deductions or are not eligible, itemized deductions are still available.
Itemized deductions include:
- Medical and dental expenses
- Deductible taxes
- Home mortgage points
- Interest expenses
- Charitable contributions
- Business use of your home or car
- Business travel expenses
- Work-related education expenses
- Casualty, disaster and theft losses
If you choose to file itemized deductions, you will also need to fill out IRS Schedule A and file it with your Form 1040 tax document. Attempting to take advantage of itemized deductions will generally require more work than filing for standard deductions — such as storing records and receipts for up to six years. However, there are no limits on the number of itemized deductions that a filer can take.
Note that you can only choose one type of deduction; you cannot claim both a standard and itemized deduction.
Tax breaks for homeowners
Tax deductions are just some of the tax breaks that homeowners enjoy. Deducting mortgage interest is one of the most popular itemized deductions, as is deducting property taxes. Deducting mortgage points, which some homeowners pay when they originally get their mortgage, is also an option that is available.
There are a number of tax deductions available to homeowners, but there are limits to how much you can deduct.
Home office expense deductions are available to people who use their home as their primary place of business and use the office space for work purposes.
Medically necessary home improvements can also be tax deductible. An example of a medically necessary home improvement can be the construction of a wheelchair ramp or installing railings in a shower.
Certain states and jurisdictions also offer tax credits for making improvements to your home that make it more energy-efficient. Examples of these improvements include installing energy-efficient appliances or solar panels.
In addition, when you sell a home, you may qualify for a capital gains exclusion of up to $250,000 ($500,000 for married couple filing jointly).
FAQ
What expenses are not tax deductible for homeowners?
Some expenses that are not deductible include your down payment, depreciation, the cost of utilities and homeowners insurance premiums.
What are the rules for deducting my mortgage interest?
It depends on when you first took out your home loan. On mortgages originated on or after Dec. 16, 2017, interest deductions are limited to $750,000 (filing jointly) or $375,000 (filing separately). These limits or lower than those for mortgage indebtedness that occurred before Dec. 16, 2017.
How do I deduct for owning a home if I’m a co-owner?
We recommend speaking with a tax professional for information about deductions you can take as a co-owner. Once you explain your circumstances, they can help you determine which deductions you qualify for.
Bottom line
For most homeowners, taking a simple standard deduction is their best option. However, if you are able to keep records and receipts pertaining to your purchases and payments, itemizing your deductions may prove to be a more financially beneficial decision. Whichever route you choose to take, the deductions you take should provide some benefit when tax season rolls around.
Article sources
- IRS, “ IRS providers tax inflation adjustments for tax year 2023 .” Accessed Jan. 10, 2023.
- IRS, “ IRS provides tax inflation adjustments for tax year 2022 .” Accessed Jan. 30, 2023.
- IRS, “ Taxpayers should know and understand their correct filing status .” Accessed Jan 10, 2023.
- IRS, “ Standard Deduction .” Accessed Jan. 30, 2023.
- IRS, “ Publication 936 (2022), Home Mortgage Interest Deduction .” Accessed Jan. 30, 2023.
- IRS, “ Publication 530 (2021), Tax Information for Homeowners .” Accessed Jan. 30, 2023.
