So, what’s the deal with tax benefits for homeowners? Owning a home can score you some pretty sweet tax perks. You can usually deduct your mortgage interest, which is a big one for many people. Property taxes are also deductible, so you can write those off on your return. If you’ve done any major home improvements, there might be some tax benefits there too. And if you’re working from home, you can claim a home office deduction. Just keep in mind that these benefits can vary based on your situation and the latest tax rules.
How much can you save in taxes by owning a home?
For most households, you can deduct interest on up to $750,000 of mortgage debt if you’re married and filing jointly, or $375,000 if you’re single. To claim this deduction, you’ll need to itemize all your deductions on your tax return. Consulting a tax pro might be a good move, but you’ll get a Form 1098 from your lender that shows how much mortgage interest you paid over the year—this form is crucial for claiming your deduction. Most DIY tax prep websites are set up to account for these deductions.
So, what does that really mean? Well, everyone’s situation will be different. But to give you a rough idea of how much you could save, let’s crunch some numbers on a 30-year conventional loan. Note that you save more during the first 10 years of the loan since you’re paying more in interest during that time (vs. paying down the principal on the loan), but since most people tend to keep their loans for about 8 or so years (before they move or refinance), this is a good indication of how much you might save early on.
| Home price | $200,000 | $400,000 | $600,000 | $800,000 | $1,000,000 |
| Down payment | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% |
| Interest rate | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% |
| Estimated annual tax savings during the first 10 years. | $4,333 per year | $7,567 per year | $10,802 per year | $14,036 per year | $17,271 per year |
These numbers are sourced via this tax deduction calculator from Freddie Mac, which you can customize in more detail to account for property taxes and the state and federal tax rate in your area. If you’re still thinking about buying a home and want to see if the tax benefits make sense, a mortgage tax deduction calculator could help you estimate your potential tax savings by figuring out how much your mortgage interest and points could lower your taxable income.
It uses details like your loan amount, interest rate, and tax rates to give you a rough idea of your savings. Just input your mortgage info to see the estimate, but remember, it’s for general guidance—always consult a tax advisor for precise advice.
How much can you deduct in property taxes?
The SALT (State and local tax) deduction lets you deduct state and local taxes, including property taxes, from your federal taxable income. This can reduce your overall tax bill by lowering the amount of income that’s subject to federal taxes.
Here’s the catch: The Tax Cuts and Jobs Act of 2017 capped this deduction at $10,000 per year for individuals and married couples filing jointly. If you’re married filing separately, the cap is $5,000.
So, if you live in an area with high state or local taxes, this cap might limit how much you can deduct, which can impact your overall tax bill. For example, if you pay $12,000 in state and local taxes, you can only deduct $10,000 of that on your federal tax return.
What is the home improvement tax deduction?
The home improvement tax deduction is like a little bonus for homeowners who make upgrades that actually add value or extend the life of their home. So, if you’re not just fixing things but seriously improving your place, you might be able to score a tax break.
What Counts:
- Energy Upgrades: Think solar panels or super-efficient windows. These can sometimes score you a nice tax break.
- Medical Upgrades: If you’re adding things like wheelchair ramps or grab bars for health reasons, those might be deductible too.
- Capital Improvements: While you can’t write off these improvements directly, they boost your home’s value, which can save you on capital gains tax when you sell.
What are work from home tax deductions?
Work-from-home tax deductions let you save some cash by writing off expenses tied to your home office. This can include a chunk of your rent or mortgage, utilities, and office supplies. If you’ve got a dedicated workspace in your home, you could trim down your tax bill.
What is the moving expenses tax deduction?
The moving expenses tax deduction used to let you write off the cost of moving for work, but it’s not available for most taxpayers anymore. Here’s the scoop:
- Old Rule: Previously, if you moved more than 50 miles for a job and met certain other criteria, you could deduct costs like truck rentals and moving supplies.
- Current Rule: Since 2018, under the Tax Cuts and Jobs Act, most people can’t claim this deduction unless you’re an active-duty military member moving due to a military order.
- Military Exception: If you’re in the military and moved due to a change of station, you can still deduct moving expenses. You’ll need to keep all receipts and paperwork related to your move.
So, if you’re not in the military, this deduction is mostly off the table.
Is home insurance tax deductible?
For most people, home insurance isn’t tax deductible because it’s considered a personal expense. The IRS generally doesn’t let you deduct personal insurance premiums.
However, if you run a business from your home, you might be able to deduct a portion of your home insurance as a business expense. If you’re renting out your property, the insurance for that rental can be deductible as a business expense too. Plus, if you faced significant damage from a disaster and didn’t get insurance coverage, you might find some relief through casualty loss deductions.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.
