Unlocking Tax Savings: 5 Must-Know Deductions for Homeowners
When it comes to homeownership, seizing every possible deduction can significantly boost your tax refund. You might be wondering how aspects like mortgage interest, home improvement expenses, and property taxes impact your annual tax bill.
Let’s unravel the complexity and explore the top tax deductions for homeowners.
#1. Maximizing Mortgage Interest Deductions
One of the standout perks of owning a home is the potential tax benefits.
As a homeowner, you can deduct the interest you’ve paid on your mortgage over the past year, subject to specific criteria.
If you secured your mortgage after December 16, 2017, you can deduct interest on up to $750,000 of mortgage debt. For mortgages obtained before that date, the limit is $1 million.*
Your loan servicer will provide IRS Form 1098 well in advance of the tax filing deadline, summarizing your mortgage payments and the interest portion paid.
#2. Savvy Savings with Discount Points
Just like mortgage interest, the discount points you paid to lower your interest rate are tax-deductible. This applies if you purchased points to reduce your interest rate.
For homes exceeding $750,000, the limit on discount point deductions applies, extending to $1 million for mortgages originated before December 16, 2017.
To qualify for this deduction, points must be used solely to lower your interest rate, not to finance standalone fees such as property taxes. Additionally, you should have had the funds to purchase the points, which cannot come from a gift or a loan.
You can deduct all points in the year of your home purchase or amortize them over the life of your mortgage.*
#3. Exploring Tax Benefits for Home Improvements
While the interest paid on loans for general home improvements is no longer tax-deductible, there are still tax-saving opportunities for specific cases.
Medical expenses related to home modifications, like wheelchair ramps or stairway renovations, qualify for deductions.
Solar energy system installations, while not tax-free, offer savings of up to 26% of the installation cost.*
#4. Property Tax Deductions
Homeowners can deduct up to $10,000 in property taxes paid annually ($5,000 for married couples filing separately), covering state and local taxes.
For those with mortgage escrow accounts, the real estate property taxes paid are reflected on the annual escrow statement. However, this deduction excludes transfer taxes, HOA assessments, energy-efficient home improvement loan payments, public assessments, and unpaid property taxes.*
#5. Leveraging Home Equity Loan/HELOC Interest
If you utilized home equity proceeds for renovations on the same property, you can deduct interest on home equity loans and HELOCs.
It’s crucial to note that the renovations must occur in the same home where you accessed the equity.*
Learn more about Debt Consolidation options or read our latest blog article on the subject here.
Before filing your taxes, be sure to stay updated on the latest tax rules and deductions, as regulations may change over time.
Consult a tax professional for personalized advice tailored to your financial situation.
At US Lending Company, our loan officers can provide insights into allowable tax deductions related to homeownership. However, please consult your tax, legal, and accounting professionals for specific advice tailored to your unique circumstances.*
*Disclaimer: This information is provided for informational purposes only and should not be relied upon for tax, legal, or accounting advice. Consult your own tax, legal, and accounting professionals for guidance specific to your situation.