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3 Tax Deductions Homeowners Shouldn’t Overlook

Feb. 4, 2019
Home Affordability, Mortgages, Property Taxes, Taxes
4 Real Estate-Related Tax Deductions You Shouldn’t Overlook
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Tax season is upon us, and if you’re a homeowner, you can claim some sizable deductions that may help reduce the amount you’ll owe.

Mortgage interest, property taxes and mortgage insurance premiums are just some of the deductions you can take if you have a mortgage on your home. Together, they can add up to thousands of dollars in savings on your tax bill.

To help you get the most out of your real-estate-related tax deductions, we spoke with tax expert Andrew Poulos, principal of Poulos Accounting and Consulting in Atlanta. Here, he explains what you can — and can’t — use as a real estate deduction on your taxes.

Note that you can either itemize deductions or take the IRS standard deduction — but not both.

“Itemized deductions are only going to benefit you if you have enough things to itemize on your taxes versus taking a standard deduction,” Poulos says.

The standard deduction for 2018 is $24,000 for married couples and $12,000 for singles or married couples filing separately. An additional $1,300 deduction is available for elderly or blind taxpayers in 2018, and that amount increases to $1,600 for those who are also unmarried.

“If your itemized items don’t exceed those amounts,” Poulos says, “it’s pointless to do them, because you’ll shortchange yourself.”

» MORE: Explore your home buying and refinance options

Mortgage interest

Home mortgages are structured so that a huge chunk of each payment you make in the initial years of ownership goes toward paying down the interest on your loan and only a little goes toward the principal. The good news is that you can deduct the interest payments on your primary (and sometimes a secondary) residence — up to $750,000 (or $375,000 if you’re married and filing separately).

Most homeowners count this as one of the largest deductions on their tax bill each year. It applies to home purchases and mortgage refinances, home equity lines of credit and home equity loans, sometimes called second mortgages.

This deduction, filed with IRS Form 1098, can add up to thousands of dollars for most homeowners. The benefit: It reduces your taxable income so you don’t owe as much come tax time.

The key to taking advantage of the mortgage interest deduction is itemizing your deductions in meticulous detail, Poulos says. Your lender will send you a statement each year to let you know how much interest you paid; that will help you figure out if it’s worth your while to itemize.


If you bought a home in 2018, there’s another deduction (score!) you may get to include on your tax bill: mortgage points. Most borrowers pay for points, which come in two forms: discount points, which allow you to prepay some of your loan interest in exchange for a better mortgage rate; and the loan origination fee. One point is equal to 1% of your loan amount. Many homeowners completely overlook this deduction, Poulos says.

Let’s say you bought a home in New York using a $500,000 loan with a 1% origination fee. That’s $5,000 you may be able to itemize as a deduction on your tax bill, and you want to get credit for each and every dollar you spent.

Your lender should provide you with a copy of your settlement statement, with the loan origination fee and discount points listed on it, in January. If you don’t receive a copy, ask for one and verify that this information is listed on it so you can take advantage of the deduction on Form 1098, Poulos says.

Property taxes

Another perk of homeownership is writing off your annual property taxes. Depending on your filing status in 2018, you could subtract up to $10,000 in taxes. You get to deduct these taxes in the year they’re paid, not the year they were due, Poulos says.

Your county’s property assessor’s office typically sends out a statement at the beginning of the year showing the amount of your property taxes. One more thing to keep in mind: If you bought a home and reimbursed the sellers for taxes they had already paid for the year, you’ll see that reflected on your settlement statement, not on your 1098.

Items you can’t deduct (sorry)

Sure, you get some pretty sweet deductions as a member of the homeowners club, but there are some exceptions. Here are a few real-estate-related costs you can’t deduct:

  • Mortgage insurance premiums.
  • Home and title insurance coverage (other than mortgage insurance premiums).
  • Depreciation.
  • Utilities, such as gas, electricity and water.
  • Most settlement costs (other than points).
  • Forfeited deposits, down payments or earnest money.
  • Home improvements paid via a private loan, cash or credit card.
  • Homeowners association fees.
  • Transfer taxes (stamp taxes) in a personal home sale.

Check out the IRS list of special situations and other nondeductible items related to homeownership.

Bottom line

One of the major benefits of owning your home has always been the tax write-offs that come with the package. Keep in mind, though, that if your itemized deductions don’t add up to as much as the standard deduction you’re eligible for, the standard deduction might be the better way to go.

If you have a complicated tax situation or you’re unsure about certain real-estate-related deductions, it’s a good idea to consult with a licensed tax professional for guidance. You don’t want to miss out on deductions that will lower your tax burden and keep more money in your pocket.

Homeownership can have some pain points along the way, but the tax benefits you reap help make the largest investment of your life pay off in the long run.

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