5 Tax Deductions for Home Owners

As April 18th approaches, we encourage all home owners to carefully identify what tax deductions home ownership qualifies them for. The last thing you want to do is leave money on the table! We are not tax professionals so we also highly advise that you compare the pros and cons of itemized deductions versus standard deductions with a trusted tax expert before you send the IRS a check.

Here are 5 common deductions to explore as they pertain to your circumstances:

1. Mortgage Interest

If you have a mortgage on your home, you can take advantage of the mortgage interest deduction. The current limit is $750,000 as a single filer or married couple filing jointly. If you are married but filing separately, the deduction limit is $375,000 for each party.

2. Home Equity Loan Interest

A home equity loan is essentially a second mortgage on your house. With a home equity loan, you can access the equity you’ve built in your home as collateral to borrow funds that you need for other purposes. Like regular mortgage interest, you can deduct the interest you’ve paid on home equity loans and home equity lines of credit. However, you can only make this deduction if you used the borrowed funds to pay for a home improvement. 

3. Discount Points

When you take out a mortgage, you may have the option to purchase discount points to lower your interest rate on the loan. If you have this option, one discount point will equate to 1% of the mortgage amount. If the points are purchased to reduce the mortgage’s interest rate, you can deduct the cost of the discount points. However, ‘loan origination points’ will not be tax deductible because these are fees that don’t affect the interest rate of your loan.

4. Home Office Expenses

If you operate a business in your residence, you may be deduct some of the expenses of maintaining that space. The IRS requires that you use your home office for regular and exclusive business use in order to qualify for a deduction. If you only use the office space when it is convenient, or just for working from home for your employer, that will not qualify.

5. Mortgage Insurance

Private mortgage insurance, or PMI, is another expense that many homeowners must factor into their budget. PMI is there to protect your lender if you are unable to continue making payments on your mortgage. You can deduct your mortgage insurance payments on your itemized tax return.

If you have any questions or comments, please leave them in the comment section below!