Homeowner Tax Breaks: What You May Be Able to Deduct

One of the often-mentioned perks of owning a home is the potential for tax savings. Those benefits are real for many owners, but they are not automatic, and how much they help depends on your income, filing status and whether you itemize. Here is a plain-English overview to help you ask the right questions at tax time.

Tax rules change, and everyone’s situation is different, so treat this as a starting point and confirm the details with a qualified tax professional.

Itemizing vs. the Standard Deduction

Many homeowner tax benefits only matter if you itemize deductions instead of taking the standard deduction. You generally choose whichever gives you the larger deduction. For some homeowners, especially those with larger loans or higher property taxes, itemizing comes out ahead. For others, the standard deduction is still the better choice. A tax preparer can run both ways for you.

Deductions Homeowners May Use

Mortgage interest

If you itemize, you may be able to deduct the interest you pay on a mortgage for your main home, and in some cases a second home, within IRS limits. Because interest makes up a larger share of payments in the early years of a loan, this deduction is often most valuable soon after you buy. Your servicer sends a form each year showing how much interest you paid.

Property taxes

Property taxes paid on your home may also be deductible when you itemize, subject to a federal cap on state and local tax deductions. If your taxes are paid through escrow, your annual mortgage statement typically shows the amount paid.

Points paid at closing

If you paid discount points to lower your interest rate when you bought, some or all of those points may be deductible. Rules differ for purchases and refinances.

Other Potential Benefits

Home office

If you are self-employed and use part of your home regularly and exclusively for business, you may qualify for a home office deduction. The IRS offers a simplified method based on square footage and a regular method based on actual expenses. Employees who work from home for an employer generally do not qualify under current federal rules.

Energy-related incentives

Over the years, federal and state governments have offered credits or rebates for certain energy improvements, such as efficient HVAC systems, windows or solar panels. What is available changes often, so check current rules before you plan a project around an incentive.

Selling your home

When you sell your primary residence, you may be able to exclude a significant portion of your profit from capital gains tax if you owned and lived in the home for at least two of the five years before the sale. The exclusion amount is higher for married couples filing jointly. Keeping records of improvements you make can also help reduce your taxable gain.

Keep in mind that improvements, not routine repairs, are what generally add to your home’s cost basis. A new roof or kitchen remodel may count, while fixing a leaky faucet usually does not. Your tax advisor can help you sort the two.

Smart Habits for Tax Season

• Save your closing documents, especially the Closing Disclosure.
• Keep the annual interest statement from your loan servicer.
• Track receipts for major improvements in a folder or app.
• Review your situation each year, since tax law and your finances can both change.

Tax benefits can be a nice bonus, but they are rarely the main reason to buy. The bigger advantages are building equity, stable housing costs with a fixed-rate loan and a place that is truly yours. Our first-time buyer page and mortgage calculator can help you see what owning might look like.

Have questions about the financing side? Talk with a FLO Mortgage loan officer, and pair that conversation with advice from your tax professional.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.