Tax Deductions New Homeowners Need to Know
Homeownership comes with some serious benefits. It can protect you from inflation, help you build wealth, and come tax season? It can even qualify you for valuable deductions and credits.
If you’re new to homeownership, or you just sold your home or refinanced this year, you might qualify for even more of those tax deductions, too. These can lower your tax burden, offset the costs of homeownership, and, yes, even increase your refund in many cases.
Want to make sure you’re taking full advantage of the 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 or $375,000 if you’re married and filing your returns separately. You can even write off interest paid on second home mortgages, as long as your loan totals are below this threshold.
If your loan was opened earlier than Dec. 15, 2017, you can deduct interest on up to $1 million.
2. Property taxes.
Most homeowners can deduct their entire property tax bill.
You had to itemize your returns, and your taxes — as well as any other state and local tax (SALT) deductions you’re taking — can’t exceed $10,000. This is less than the standard deduction ($12,950 for single filers, $19,400 for heads of households, and $25,900 for couples filing jointly), 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.
If you took out a home equity loan or HELOC, the interest you paid on that loan may be deductible — but only if you used the funds to substantially improve the value of your property, meaning make repairs, upgrade it, or renovate it, etc. 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 costs with a residential energy-efficient property tax credit. The exact credit depends on when you install the system, but it ranges anywhere from 22% to 30% and gets applied directly to your annual tax bill (meaning it lowers how much you owe — not your taxable income.)
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 — and for the entirety of your loan term.
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, as credits vary widely by location.
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 ($500,000 if filing jointly with your spouse), then your capital gains will not count as income or be charged a federal income tax.
An important caveat here: The home must have been your primary residence at least two out of the last five years prior to the sale.
9. Private mortgage insurance tax deduction.
Are you paying for PMI or MIP as part of your mortgage loan? You can write off these costs, too.
As long as you make $100,000 or less, you can deduct the entire year’s mortgage insurance premiums. If you make between $100,000 and $109,000, you can write off 10% – 90% of the premiums. (Taxpayers making over $109,000 do not qualify.)
10. First-time homebuyer credit?
A tax credit just for first-time homebuyers was introduced in Congress in early 2021. Though it has yet to be approved by either chamber, the credit would offer first-time buyers an advanceable $15,000 they can put toward their down payment. For those eligible, it could mean serious savings upfront and over the course of their mortgage loan.
Get guidance from a tax pro
Not all homeowners will be eligible for all of the above — and in some cases, there may be other potential tax perks you qualify for. Make sure you talk to a tax professional or financial advisor for personalized guidance regarding your returns.
Friendly reminder: We’re not tax pros nor financial advisors. Always run your tax plan by a licensed tax professional before filing your returns!