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Tax deductions for homeowners

Tax deductions for homeowners in 2023

How to deduct mortgage interest, property taxes and more

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Updated: 07/12/2023

There are certain tax benefits that homeowners receive that aren't available to renters. Between mortgage interest, property taxes and other home expenses, there are quite a few deductions you may potentially qualify for, lowering your overall tax bill. Don't leave money on the table and pay more in taxes than you should. That’s just giving the government free money.

Whether you already own a home or are considering buying one, learn more about the tax deductions and credits available to homeowners.

Key insights

Homeowners get a mortgage interest deduction on the first $750,000 borrowed.
Vacation homes and rental properties offer income, sales and property tax deductions up to $10,000 per tax return.
Tax credits reduce taxes owed, while deductions reduce your taxable income.
The standard deduction may be a better option than itemized deductions if you have a small mortgage.

What are tax deductions?

Generally speaking, tax deductions reduce your tax burden by lowering your taxable income. For example, someone with an annual income of $100,000 who qualifies for $15,000 in deductions has a taxable income of $85,000. Deductions can drop you into a lower tax bracket, saving you even more money.

You claim tax deductions by using either a standard deduction or itemized deductions, whichever saves you more money.

Standard deduction

The IRS sets the standard deduction amount annually. For the 2023 tax year:

The standard deduction for single or married people filing separately is $13,850.
The standard deduction for married people filing jointly is $27,700.
The standard deduction for heads of households is $20,800.

For most people, it makes sense to stick with the standard deduction. An estimated 90% of taxpayers claim this deduction.

Itemized deductions

Despite the popularity of the standard deduction, you should run the numbers on your itemized deductions to see if you can save more money that way. By taking itemized deductions related to homeownership, you can lower your taxable income and reduce the amount of taxes you owe. Deductible expenses can range from mortgage interest to property taxes to having a home office.

To get the biggest deduction available, calculate your itemized deductions to compare them against the standard deduction. If your eligible itemized deductions are higher than the standard deduction amount, it makes sense to itemize your deductions on your taxes.

>>MORE: 2022-2023 tax brackets

8 homeowner tax deductions

The IRS incentivizes homeownership by providing tax benefits to people who buy homes. These tax breaks usually come in the form of credits or deductions. In basic terms, the difference is that:

Tax credits decrease your tax burden by a set dollar amount.
Tax deductions make a portion of your income nontaxable.

Tax credits for homeowners often come in the form of incentives for taking specific actions, like installing energy-efficient features. By comparison, tax deductions are a way to offset some of the standard costs of homeownership.

>>MORE: The tax benefits of owning a home: must-know deductions and secrets

1. Mortgage interest

If you have a home loan , you have to pay back both the principal amount that you borrowed plus interest. The interest paid on your mortgage is deductible.

Singles and married couples filing jointly can get mortgage interest deductions on the first $750,000 of mortgages. This limit applies to the combined balances on all mortgages, including if you own multiple properties. For married couples filing separately, each spouse can deduct interest on up to $375,000 of principal mortgage balances.

Homeowners can deduct the interest on up to $1 million for mortgages originated before Dec. 16, 2017. The Tax Cuts and Jobs Act reduced the limit to $750,000 for mortgages taken out after that date.

2. Home equity loan interest

A home equity loan or home equity line of credit lets you borrow money against the equity in your home. Like with a mortgage, you pay interest on the amount you borrow, and this interest is potentially deductible. To deduct the interest, you must use the borrowed money to buy, build or substantially improve the home. You cannot deduct home equity interest if you use the money to make other purchases or consolidate debt, like credit card balances.

Eligible home equity loan and line of credit balances count toward the $750,000 mortgage interest deduction cap ($375,000 if you’re married and filing separately).

3. Mortgage points

You buy mortgage discount points when you pay extra at closing on a new mortgage to reduce the interest rate on your loan. Although it’s considered mortgage interest, most mortgage points aren’t deducted in the year they’re paid. Instead, the deductions must be spread over the life of the loan. If you refinance or pay off the loan early, the remaining balance of the deduction can be claimed in the year of the refinance or payoff.

4. Property taxes

Property taxes paid on real estate you own — including vacation homes, rental property and land — can also be deducted. If you’re a married couple filing jointly, you can write off a combined total of $10,000 per tax return for state income tax, state sales tax and property tax. This limit is $5,000 for single people and married couples filing separately, though.

5. Rental property expenses

If you own rental property , you might be able to write off certain expenses, like maintenance and repairs. The IRS defines a rental property as a home you own that you reside in for either 14 or fewer days per year or 10% or fewer of the total annual days you rent it to others at a fair market rate (whichever number is greater).

Caitlynn Eldridge , a certified public accountant (CPA), notes that many rental property investors miss out on valuable deductions. "Homeowners who rent their property out often miss depreciation, homeowner association (HOA) fees, lawn care fees and any travel to and from the rental house to take care of repairs. Unfortunately, the homeowner's labor isn't deductible when making repairs," she said.

6. Home office expenses

If you have a home office for your business, some expenses are deductible. For this write-off, your home office must be your primary place of business, and the space must be exclusively used for the business. Using a common area in your home, like your dining room table, is not eligible for a home office deduction.

Romeo Razi , a former IRS auditor and the founder of Taxed Right, a tax consultancy for small and medium-sized businesses, cautioned that the home office deduction "is complicated, so it's best that you reach out to a CPA to make sure you don't do anything wrong and get in trouble with the IRS.”

7. Medically necessary home improvements

Home improvements might be deductible if they are motivated by medical needs. If the improvement increases the value of your home, subtract the increase in value from the cost of the improvement to determine your deduction.

If you spend $10,000 on a swimming pool you use for medical reasons and the pool increases your home’s value by $4,000, you’re only eligible for a $6,000 deduction. Medically necessary home improvements fall under the medical expense deduction, so you can only write off amounts that exceed 7.5% of your adjusted gross income.

8. Energy-efficient home improvements

Energy-efficient home improvements made after Jan. 1, 2023, may qualify for a tax credit of up to $3,200 per year. Eligible expenses qualify for a credit of 30%.

Examples of eligible expenses include home energy audits, energy-efficient doors and windows and qualified heat pumps, biomass stoves and biomass boilers. There is no lifetime dollar limit for the credit, which means that you can claim the maximum credit amount each year that you make eligible improvements until the year 2033. The credit is not refundable.

What is not tax deductible for homeowners?

Many of the costs related to owning your home are, unfortunately, not tax deductible. These include:

Mortgage payments: Although you may qualify to deduct the interest portion of your payment, you cannot deduct the full payment amount. The portion of your payment that covers the mortgage’s principal is not eligible.
Mortgage insurance premiums: Effective as of the 2022 tax year, taxpayers can no longer claim mortgage insurance premiums as a deduction.
Home repairs and maintenance: Regular repairs to your residence — like fixing leaky pipes, replacing appliances or painting — are not tax deductible.
Utility bills: Utilities like water, electricity and gas are not tax deductions. Internet access, television and digital service subscriptions don’t count either.
Upgrades to your home: Upgrades to your home add to the potential profit you’ll make should you ever sell your home, but they’re usually not tax deductible. Examples of things that can’t be deducted include building a second story, adding another bedroom or remodeling your bathroom.
HOA fees: HOA dues for your residence can’t be deducted.
Mortgage closing costs: Closing costs when purchasing your home, except for the discount points explained above, also can’t be deducted.
Homeowners insurance premiums: Homeowners insurance protects your home against fire, theft and other damage, but paying these insurance premiums for your residence won’t qualify you for a deduction.

If you're unsure of what qualifies as a tax deduction or whether you should itemize or take a standard deduction, consult a tax professional.

FAQ

Is there a standard deduction for owning a home?

The standard deduction is available to all taxpayers and is not linked to owning a home. This tax deduction is available for homeowners, renters, people residing with their parents or any other living situation. Speak to your tax professional or use tax software to determine whether itemizing or taking the standard deduction is best for your situation.

Are tax credits or deductions better?

A tax deduction reduces your taxable income, while a tax credit reduces your tax bill. Tax credits are better because they’re a dollar-for-dollar reduction in the amount of taxes you owe. Some tax credits are "refundable," which means you'll receive money from the IRS if the credit amount is greater than the amount of tax you owe.

What is the maximum mortgage deduction for 2023?

Mortgage interest rates may fluctuate considerably from year to year and borrower to borrower, and there isn't a specific dollar amount for how much your mortgage interest deduction can be. However, you can only deduct interest on the first $750,000 borrowed for mortgages originated after Dec. 16, 2017. Homeowners can deduct interest on up to $1 million for mortgages originated before this date.

Can you deduct interest from a home equity loan or line of credit?

Interest paid on a home equity loan or line of credit is tax deductible if the money borrowed helped you buy, build or substantially improve your home. You can’t deduct the interest if the money from the home equity loan or line of credit was spent for other purposes, such as consolidating debt, paying for college or going on vacation.

Bottom line

Tax deductions can be a great way to reduce your tax bill each year when you own a home. Add up all of your potential deductions to see if the standard deduction makes more sense than itemizing your deductions. If the combined itemized deductions are greater than the standard deduction, it makes sense to put your individual deductions to use.

Looking for federal and state tax credits can also lower your tax burden and keep more money in your pocket. Tax laws and government programs change each year, so review opportunities annually to find savings.

Article sources

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:

IRS, " Credits and Deductions for Individuals ." Accessed June 1, 2023.
IRS, " Publication 936 (2022), Home Mortgage Interest Deduction ." Accessed June 1, 2023.
Insider, " The average mortgage interest rate by state, credit score, year, and loan type ." Accessed June 1, 2023.
IRS, " IRS provides tax inflation adjustments for tax year 2023 ." Accessed June 1, 2023.
IRS, " Credits and Deductions for Individuals ." Accessed June 2, 2023.
IRS, " Topic No. 502, Medical and Dental Expenses ." Accessed June 2, 2023.
IRS, " Publication 530 (2022), Tax Information for Homeowners ." Accessed June 2, 2023.
IRS, " Topic No. 503, Deductible Taxes ." Accessed June 2, 2023.
IRS, " Topic No. 415, Renting Residential and Vacation Property ." Accessed June 2, 2023.
IRS, " Home Office Deduction ." Accessed June 2, 2023.
IRS, " Publication 502 (2022), Medical and Dental Expenses ." Accessed June 2, 2023.
IRS, " Energy Efficient Home Improvement Credit ." Accessed June 2, 2023.

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