In case you needed the reminder, taxes are due by April 15! So, since tax season is officially here, we thought it’d be a great time to talk about the tax breaks available to you as a homeowner.

Most tax benefits are tax deductions, which are reductions to your taxable income. This is helpful because the less of your income that’s taxed, the less money you’ll end up paying in taxes.

But before we talk about what tax deductions are available, let’s discuss the difference between standard and itemized deductions.

With a standard deduction, you can reduce your taxable income by a standard amount. However, with itemized deductions, the total amount you get will offset your taxable income and lower your tax burden. As a homeowner, check if your itemized deduction is larger than the standard deduction before choosing which route to go.
 

 

6 different types of tax deductions

Now, let’s dive into the different types of tax deductions available to homeowners.

Mortgage interest

Also known as the amount of interest you pay on your home loan each year, this is one of the most common tax deductions for homeowners. It’s also usually the most profitable option, especially for new homeowners, since they have more payments going toward loan interest at the start of their mortgage.

Homeowners who are filing their taxes jointly or as single tax filers can deduct all payments for mortgage interest on the first $75,000 of their mortgage debt or up to $1,000,000 if you’re deducting mortgage interest from before Dec. 15, 2017. If you are married but file separately, you can deduct half of those amounts.

Also, just like regular mortgage interest, any interest from your home equity loan or second mortgage can be deducted from your taxes. However, this is limited to a maximum loan total of $1 million or $750,000 if you purchased your home after Dec. 15, 2017.

If you’re thinking of using this common tax deduction, here are some forms you’ll probably need:

• Mortgage Interest Statement (Form 1098): Your mortgage lender is required to provide you with a Form 1098, which includes the amount of mortgage interest, home equity loan or home equity line of credit interest you paid during the tax year. This form is crucial for claiming the mortgage interest deduction.

Mortgage Points

If you buy a home in the current tax year, you can purchase mortgage points or discount points to decrease the interest on your mortgage. Each 1% of the mortgage amount that homebuyers pay on top of their down payment can potentially reduce their interest rates by 0.25% (this amount can vary, so be sure to check with your lender).

These can be especially useful on 30-year mortgages because they lower the total interest you’ll be paying and potentially even save you some money on your taxes when you buy them. The IRS pretty much treats these like prepaid interest, so you can add the total amount you paid for the points to your total mortgage interest.

Don’t forget these documents if you plan to buy mortgage points:

• Closing Documents: If you bought or sold a home during the tax year, your closing documents may contain valuable information for deductions, such as points paid on your mortgage or prorated property taxes.

Property taxes

Local and state real estate taxes, often referred to as property taxes, can be deducted from your taxes. The amount that can be deducted is lower now than it was in 2017 because of the Tax Cuts and Jobs Act of 2017. However, you can still deduct up to $10,000 combined from your property taxes and state and local income taxes.

If you plan to deduct these from your taxes, keep this form in mind:

• Property Tax Statements: Your local government or tax authority will send you annual statements detailing the property taxes you paid for the year. You can use these statements to claim deductions for property taxes paid. Taxes will also be listed on your Mortgage Interest Statement (Form 1098)

Energy-efficient tax credits

If you decided to make energy-efficient improvements to your home in 2023, you’re in luck! There’s a good chance you can get back some of that money as tax credits. But it can get a little tricky so let’s break it down.

There are actually two types of energy-efficient tax credits: the residential clean energy credit and the energy-efficient home improvement credit.

• Residential clean energy credit: This can give you 30% back on any money you spent installing things like solar electricity, solar water heating, wind energy, geothermal heat pumps, biomass fuel systems or fuel cell property.
• Energy efficient home improvement credit:
  • Residential energy property costs: You get a flat tax credit of $50 to $300 for installing items that are Energy Star-certified (furnaces, water heaters, etc.).
  • Qualified energy efficiency improvements: You can receive a 10% tax credit for the cost of things like adding insulation or replacing windows.

Be sure to keep this in mind when making these improvements:

• Home Improvement Receipts: If you made any qualifying home improvements that are eligible for tax deductions or credits (especially energy-efficient upgrades), you'll need receipts or invoices to document the costs.

Home office exemptions

If you’re self-employed and use any part of your home regularly for your business, you can claim home business expenses. (These can also be available for renters, too!) By using the standard home-office deduction you could get $5 per square foot used for business all the way up to 300 square feet.

But don’t forget this if you have a home office:

• Home Office Expenses: If you're eligible to claim a home office deduction, gather receipts for expenses related to your home office, such as utilities, internet bills, office supplies, and equipment purchases.

If you sold your primary home, you could get a tax deduction

When you sell your home, you’ll have to pay taxes on the amount you earned from selling as capital gains. BUT, if you have lived in that house for two of the past five years, you could get an exclusion on capital gains tax. This is usually $500,000 for married joint filers or $250,000 for single or separate filers.

If this sounds like your situation, be sure to keep these handy:

• Capital Gains and Losses: If you sold a home during the tax year, you'll need documentation of the sale price, any capital improvements made to the property, and other relevant expenses to calculate capital gains or losses.

Tackle tax season like a pro!

We know filing your taxes probably isn’t something you look forward to every year, but knowing about the tax deductions available to you as a homeowner can definitely help! Be sure to check out ALL your options so you can take FULL advantage of what’s available to you.

Have questions about refinancing or buying a new home? Contact a Movement loan officer near you!

*Should not be construed as legal or financial advice. Please consult a tax professional/financial advisor.