Owning a home has several financial benefits, and that includes potential tax savings. As a homeowner, you may be able to reduce what you owe the IRS by itemizing available homeownership tax deductions. While itemizing isn’t beneficial for most taxpayers (only about 10% of households itemize), it offers important savings for some. Here are seven common homeownership tax deductions to consider.
1. Mortgage interest
Typically, mortgage interest is the biggest tax deduction for homeowners who itemize. However, there’s a limit on how much of your mortgage debt qualifies for itemization.
2. Home equity loan interest
If you took out a home equity loan or home equity line of credit (HELOC) and spent the borrowed money on any home improvements, you can deduct the interest, although this counts toward your total mortgage interest deduction limit.
3. Discount points
Discount points are fees that a borrower pays when getting a mortgage in exchange for a lower interest rate. These may be deductible, but once again, they count toward your total mortgage interest deduction limit.
4. Property taxes
You can deduct up to $10,000 (or $5,000 if you’re married and filing separately) of property taxes in combination with state and local income taxes or sales taxes.
5. Home office expenses
If you’re self-employed and use part of your home consistently and exclusively for your business, you may be able to deduct home office expenses. Check out this IRS webpage to help determine what you can deduct.
6. Medically necessary home improvements
The cost of installing health care equipment or medically necessary improvements in your home that are needed for you or your family may be partially or fully deductible.
7. Mortgage insurance premiums
The cost of mortgage insurance is deductible as long as your mortgage insurance contract was issued after 2006 and your adjusted gross income is less than $109,000 ($54,500 if you’re married and filing separately).
So, should you itemize your taxes to claim homeowner deductions? To see a benefit, your itemized deductions will need to exceed your standard deduction. For many households, homeowner deductions alone aren’t enough to pass that threshold. However, taxpayers with other significant potential itemizations, such as large charitable contributions or uninsured medical expenses, may see a benefit.
Visit this IRS page for more info about deciding whether to itemize. For specific advice on your situation, speak with your tax professional.
Although we don’t offer financial advice, we can help you with any of your homebuying plans for 2021. Get in touch today!
Disclaimer: Draper and Kramer Mortgage Corp. does not provide financial planning, investment, tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, financial planning, investment, tax, accounting or legal advice. You should consult your own financial planning, investment, tax, accounting or legal advisers before engaging in any transaction.