*This blog post should not be considered tax or legal advice, contact your CPA or tax attorney for tax advice specific to your situation.
As a homeowner, taking advantage of IRS tax strategies can save you money while making homeownership more financially rewarding. Here’s a breakdown of the main IRS homeowner tax benefits to maximize.
1. Mortgage Interest Deduction
- What It Is: Homeowners can generally deduct interest paid on a mortgage up to $750,000. If your loan was taken before December 15, 2017, the limit increases to $1 million.
- Requirements: The loan must be used to buy, build, or improve the home that secures it. You’ll itemize these deductions on Schedule A of Form 1040.
- Settlement Interest: Mortgage interest paid at settlement can also be deducted, provided you itemize your deductions.
2. Real Estate Tax Deduction
- What It Covers: Most state and local governments charge an annual property tax. Deductible real estate taxes include those paid at closing or directly to the taxing authority.
- Limitations: The total deduction for state and local taxes (including property and income/sales taxes) is capped at $10,000.
- Who Qualifies: Homeowners who itemize deductions can include their property taxes, even if they receive non-taxable housing allowances (like military or clergy allowances).
3. Home Sale Exclusion
- How It Works: If you sell your primary residence, you can exclude up to $250,000 ($500,000 for married couples) of capital gains from your income.
- Requirements: The home must have been your primary residence for at least two of the last five years.
- Partial Exclusions: You may qualify for a partial exclusion if your move was prompted by work, health, or unforeseeable events.
4. Home Improvement and Repair Costs
- Adjusting Your Basis: Renovations and major improvements (like adding a room or upgrading the kitchen) increase your home’s basis, lowering capital gains if you sell.
- Non-Deductible Repairs: Routine repairs (like fixing leaky faucets) aren’t deductible but can boost your property’s basis when you sell.
- Tracking Expenses: Keep records of all home improvements to adjust your basis correctly.
5. Energy-Efficient Home Improvements
- Residential Clean Energy Credit: You may claim 30% of costs for qualifying clean energy upgrades (e.g., solar panels, battery storage) installed after 2022.
- Home Efficiency Improvement Credit: This new credit covers energy-efficient doors, windows, and HVAC systems. Check with the IRS guidelines to see if your improvements qualify.
6. Mortgage Insurance Premiums
- Deduction Rules: For 2023, the deduction for mortgage insurance premiums was not renewed, so it isn’t deductible for tax purposes.
7. Points Deduction
- What They Are: Points, or mortgage origination fees, may be fully deductible in the year paid if the loan is used for your primary residence, and certain conditions are met.
- Refinanced Loans: Points paid on refinanced mortgages must be spread out over the loan term, except for amounts used for home improvements.
8. Home Office Deduction
- For Homeowners with Business Use: If you run a business from home, a portion of your mortgage interest, property taxes, utilities, and repairs may be deductible. You can use either the regular method or the simplified option to calculate your home office deduction.
This information is from IRS Publication 530, click here for the full publication.