Tax Breaks for Homeowners

How to Save Money With Tax Credits & Deductions for Your Home

If you are a homeowner, your home could be a great asset when it comes to doing your tax return. To encourage homeownership and energy conservation, the government provides several tax breaks geared toward homeowners. Using these tax deductions and credits can save you money on your taxes and can often lead to a healthy tax refund.

Here are a few tax breaks you may be eligible for if you are a homeowner.

Mortgage Interest and Points Deduction

The interest and points you pay on your mortgage are generally tax-deductible. The interest must be on the original mortgage for purchasing your home or refinancing for home improvements – if you refinanced your home in order to pay off a car or other expenses, the interest on the extra loan amount is not deductible.

Points may also be deductible on your tax return. If you paid points when you originated the loan, you can use them for a tax deduction the first year. For points on refinance loans and home equity lines of credit, the points would be spread out over the life of the loan, but they are still deductible. Your mortgage company should send you a tax form with your paid interest and points for the year.

For more information, see IRS Publication 936 (Home Mortgage Interest Deduction).

Deduct Casualty Losses Affecting Your Home

Did you have extensive losses due to theft, vandalism, or Mother Nature’s wrath? If you had repairs that were paid out-of-pocket and not covered under insurance, you may be able to deduct these losses on your tax return. Water damage, roof repairs, tree removal, and many other expenses can be expensive – but you may be able to minimize your losses by deducting them on your tax return.

For more information, see IRS Publication 547 (Casualties, Disasters, and Thefts).

Energy-Efficient Home Improvements

If you had home improvements done during the year, you could have tax credits you can use on your 1040 tax return. Many upgrades to your home that help improve its energy efficiency have a potential tax benefit. This includes insulation, windows, doors, furnaces, heat pumps, and roofing. The home improvements must meet the Energy Star or EPA standards required by the IRS, so check to make sure they qualify.

Energy-efficient improvements are one of the few tax credits for homeowners. Keep in mind that tax credits are more beneficial than tax deductions since they are applied directly to reduce your tax balance (instead of lowering your taxable income like deductions).

For more information, see the FAQ’s about Energy Incentives for Residential Property or visit the Energy Star website.

Deduct Property Taxes

The money you pay for property taxes (i.e. real estate taxes) to the local and state government can be deducted on your tax return, along with sales tax. The federal deduction for state and local taxes is limited to $10,000 (or $5,000 for a married couple filing separately). For more information, see IRS Publication 503 (Tax Information for Homeowners).

Overall, you should make the most of your tax options for owning or buying a home. Consult a tax professional to ensure you are taking advantage of every tax break available for homeowners when you file your next tax return.

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