2021 Tax Deductions New Homeowners Need to Know

2020 Home Tax Deductions and What New Homeowners Need to Know

If you’re one of the millions of Americans who dread tax season, you may just be in luck — at least if you bought or sold a home in the last year. Homeowners can usually qualify for a number of valuable write-offs and tax deductions that other citizens don’t have access to.

These can lower your tax burden, offset the costs of homeownership, and, yes, even increase your refund in some cases.

And if you’re new to homeownership? Or you recently sold a property or refinanced your mortgage? You may just qualify for even more of those deductions.

Want to make sure you’re taking full advantage of the homeownership tax perks you’re eligible for?

Here are the potential homeowner tax deductions you’ll want to consider

A quick note: We’re not tax pros nor financial advisors. Always run your tax plan by a licensed tax professional before filing your returns (they might even have some more deductions up their sleeves!).

1. Mortgage interest deductions.

In most cases, you can deduct any interest you pay on your mortgage loan — up to $750,000 in total debt. If your loan is older than Dec. 15, 2017, you can deduct interest on up to $1 million. (The numbers are a little different depending on if you file solo or jointly, so be sure to consult your tax advisor).

2. Property taxes.

Most homeowners can deduct their entire property tax bill.

The catch?

It just has to be under $10K. As of December 2019, SALT deductions — combined state and local tax deductions (which includes property taxes) — can’t exceed $10,000. This is a little less than the standard deduction ($12,200), so it may or may not work in your favor to take this one.

3. Home office tax deductions.

4. Home equity loan interest deduction.

Not all home equity or HELOC loan interest is deductible, but if you use your funds to actually improve the value of your property (make repairs, upgrade it, renovate it, etc.) then you’re free to deduct it from your annual tax liability.

Just keep in mind: you can only deduct interest on up to $750,000 in debt — and that includes your primary mortgage, too.

5. Energy-efficient upgrades.

Want to add some solar panels, a wind turbine, or a solar water heater?

You can offset some of the cost with a key tax write-off — at least for the next year or two. For the 2020 tax year, you can deduct 22% of your eligible costs.

In addition to tax deductions, there are also tax credits for various other eco-friendly upgrades as well.

6. Mortgage credit certificates.

If you meet certain income requirements, you might also qualify for a mortgage credit certificate. These offer an outright, dollar-for-dollar credit toward your tax liability based on the mortgage interest you pay annually.

So, for example, if you paid $2,000 in mortgage interest and qualify for an MCC, you’d be able to reduce your annual tax bill by $2,000. You’ll need to check with your state’s housing agency to learn more about MCCs in your area.

7. Discount points.

If you just bought a home and you paid discount points to lower the interest rate on your loan, then you’ve got another deductible in your pocket.

Since points are basically pre-paid interest, they’re considered write-offs just like mortgage interest is. Simply deduct the full total you spent on mortgage points at closing, and reduce your tax liability accordingly.

In the future, if you decide to refinance your mortgage loan, you can also deduct points for that year as well. (Keep in mind, this also needs to fall under the combined $750,000 limit, along with other interest write-offs).

8. Tax deductions for capital gains.

If you sold a home before buying your new one, you might be able to write off your profits, too. As long as you made $250,000 or less on your home sale, then all your capital gains are deductible ($500K if filing jointly with your spouse).

The home must also have been your primary residence at least two out of the last five years.

9. Private mortgage insurance tax deduction.

Paying mortgage insurance?

This deduction was just recently revived. Now, as long as you make $100,000 or less, you can write off your entire year’s mortgage insurance premiums. If you make between $100,000 and $109,000, you can write off 10%-90% of the premiums.

More about homeownership tax deductions this year

With a new administration in the White House, there’s another tax perk you should have on your radar: the First-time Homebuyer Tax Credit.

President-elect Joe Biden has proposed a first-time homebuyer credit, which offers first-time buyers an advanceable $15,000 they can put toward a down payment. For those eligible, it could mean serious savings upfront and over the course of their mortgage loan.

Of course, this is only an idea at this point, and we’ll have to wait until January 20, 2021 (and probably much later) to see if it comes to fruition. In the meantime, get with your tax advisor, and see what other credits you may be eligible for. They could save you valuable dollars come April 15.

Friendly reminder: We’re not tax pros nor financial advisors. Always run your tax plan by a licensed tax professional before filing your returns!

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Aly Yale

Aly J. Yale is a mortgage and real estate writer based in Houston. Connect with her at AlyJYale.com or on Twitter at @AlyJwriter.