Don't Pay More In Taxes Than You Have To: 9 Home Tax Deductions For Which You Might Be Eligible

Tax deductions

For many homeowners, especially first-time homeowners, it can be a struggle just to pay the monthly bills. You can use all the help you can get to lower costs associated with home ownership. One way to do that is to take advantage of every home tax deduction for which you’re eligible.

Here are 9 home tax deductions for which you might be eligible:

1. You can deduct home mortgage interest: This is a big one. Because mortgages are usually amortized, the bulk or early payments are in the form of interest, not principal—and all of those interest payments are tax deductible, up to a maximum of $1 million if you’re married and filing jointly, or $500,000 if filing separately. The only restriction is that the mortgage must be for a first or second home. For details about mortgage deductions, visit IRS Publication 936.

2. Home improvement loans: You can deduct interest on home improvement loans (like an addition or a kitchen replacement). The only condition is that the improvements must increase your home’s value. These are called “capital improvements” and include things like a new garage, a home addition, or new insulation. You cannot deduct interest on loans for ordinary repairs, such as fixing a broken window or painting.

3. Deduct money paid for property taxes: Property taxes are fully deductible, with one caveat—you can’t deduct these monies until they are taken out of your escrow account.

4. Deductions for a home office: Telecommuting is increasingly popular. If you use a part of your home “exclusively and regularly” as your primary place of business, or if you store business-related items in part of your home, you can deduct several costs, including those for repairs, insurance and depreciation. In past years, those who work from home have been reluctant to take this deduction, fearing it might trigger an IRS audit. According to Forbes, that’s an “old wives tale.” You should take this deduction as long as what you report is reasonable and fair.

5. If your loan has points, deduct them: If your lender assigns points to your mortgage – for instance, 1% of the loan principal — you can deduct that amount. This is true whether the loan is for a new home or the refinancing of an existing home. Lenders typically assign between 1 and 3 points. If your mortgage is $200,000 and you have 3 points, that’s $6,000 you can deduct.

6. Deduct home equity loan interest: If you take out a home equity loan, you can deduct interest on the loan. The total you can deduct is the lesser of $100,000 if you file jointly or $50,000 if filing separately, or the total fair market home value less outstanding home debts.

7. Expenses associated with the sale of your home: When you sell your home, you can deduct costs associated with the sale, including advertising costs, title insurance, commission you pay to a real estate broker, inspections and needed repairs (as long as those repairs were made within 90 days of the sale).

8. Deduct costs for a move related to a new job: if you have to move for a new job, and that new job is at least 50 miles from your old job, and if you worked steadily for at least 39 weeks in the year before your move, you can deduct some of your moving costs. Costs for things such as lodging, transportation and storage fees are deductible.

9. You can deduct profit from the sale of your home: This is referred to as a capital gains exclusion. If you receive a profit on the sale of your home, you can deduct up to $500,000 if married and filing jointly, or $250,000 if you file separately.

If you have questions, or if you want some helpful advice about buying a new home, contact us today.

Lisa Walker