Owning a home comes with significant financial responsibilities, but it also provides valuable tax benefits that can help you save money. Whether you’re a first-time homebuyer or a seasoned homeowner, these real estate tax breaks can help you reduce your taxable income and get some money back. Here are ten essential tax breaks you should know about.
1. Mortgage Interest Deduction
One of the most significant tax benefits for homeowners is the mortgage interest deduction. If you have a mortgage on your primary or secondary residence, you can deduct the interest paid on loans up to $750,000 ($375,000 if married filing separately). This deduction applies to both new and existing mortgages and can result in substantial savings, especially in the early years when interest payments are higher.
To claim this deduction, you must itemize your deductions rather than take the standard deduction. This is beneficial for homeowners whose total itemized deductions exceed the standard deduction amount.
2. Property Tax Deduction
Homeowners can deduct up to $10,000 ($5,000 for married couples filing separately) in state and local taxes (SALT), which includes property taxes. This deduction helps offset the cost of homeownership and reduces taxable income.
Keep in mind that if you have an escrow account, property taxes may already be included in your mortgage payments. Be sure to check your annual mortgage statement to see the amount you paid.
3. Mortgage Points Deduction
If you paid mortgage points to secure a lower interest rate when purchasing or refinancing your home, you may be able to deduct those points on your tax return. Generally, you can deduct the full amount in the year you paid for a home purchase. For refinances, the deduction is spread over the life of the loan.
Mortgage points are prepaid interest, and each point typically costs 1% of your loan amount. This deduction is especially beneficial for new homebuyers looking to reduce their taxable income in the first year of homeownership.
4. Home Office Deduction
For homeowners who work from home, the home office deduction allows you to deduct a portion of your home-related expenses, such as utilities, rent (if applicable), and depreciation. To qualify, you must use a dedicated space exclusively for business activities.
There are two methods to claim this deduction: the simplified method, which allows you to deduct $5 per square foot (up to 300 square feet), or the regular method, which calculates actual expenses based on the percentage of your home used for business.
5. Energy-Efficient Home Improvements
Investing in energy-efficient upgrades like solar panels, energy-efficient windows, and insulation may qualify you for tax credits. The Residential Clean Energy Credit allows homeowners to claim 30% of the cost of solar panels, wind turbines, and other renewable energy improvements.
Additionally, the Energy Efficient Home Improvement Credit covers up to $3,200 for energy-efficient upgrades like HVAC systems, heat pumps, and exterior doors. These tax credits not only help the environment but also reduce your tax burden.
6. Capital Gains Exclusion
If you sell your primary residence, you may exclude up to $250,000 of profit ($500,000 for married couples filing jointly) from capital gains taxes, provided you have lived in the home for at least two of the past five years.
This exclusion allows homeowners to keep a substantial portion of their home sale profits tax-free. However, if you've used part of your home for business purposes, such as a rental property, different rules may apply.
7. Home Improvement Loan Interest Deduction
If you take out a home equity loan or home equity line of credit (HELOC) to make substantial improvements to your home, the interest on the loan may be tax-deductible. The key requirement is that the loan must be used for capital improvements, such as a new roof, remodeling a kitchen, or adding a bathroom.
The IRS does not allow deductions for loans used for personal expenses, such as paying off credit card debt or funding vacations.
8. Medical Home Improvements
If you make home modifications for medical reasons—such as installing wheelchair ramps, widening doorways, or adding a stairlift—you may be able to deduct the costs as a medical expense. These expenses must exceed 7.5% of your adjusted gross income to qualify.
Other qualifying modifications include installing handrails, lowering cabinets for accessibility, and modifying bathrooms for medical necessity. The primary purpose of these changes must be to accommodate a medical condition rather than increasing home value.
9. Moving Expense Deduction (For Active-Duty Military)
While most taxpayers can no longer deduct moving expenses, active-duty military members relocating due to orders may still be eligible.
Qualifying expenses include transportation, storage, and lodging costs related to the move. To claim this deduction, military personnel must be moving due to a permanent change of station (PCS). This deduction helps ease the financial burden of frequent relocations.
10. Mortgage Insurance Premium Deduction
If you pay private mortgage insurance (PMI) on a conventional loan or mortgage insurance premiums on an FHA loan, you may be able to deduct these costs, depending on your income level. This deduction is especially beneficial for homeowners who made a smaller down payment and had to purchase PMI.
Currently, the deduction phases out for individuals with an adjusted gross income above $100,000 ($50,000 if married filing separately). If your income is within the limits, this deduction can provide substantial tax relief.
How Scout Realty Can Help
Navigating homeownership-related financial benefits can be complicated, and missing out on key savings means leaving money on the table. At Scout Realty, we don’t just help you buy or sell a home—we guide you in making smart financial decisions to maximize your investment.
If you're considering homeownership or looking to sell, our team at Scout Realty is here to provide expert advice and connect you with trusted professionals to help you navigate the financial side of real estate. Contact us today to start making the most of your homeownership journey!
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