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Tax Deductions for Homeowners

You can deduct mortgage interest, property taxes and other expenses up to specific limits if you itemize deductions on your tax return.
Feb. 26, 2020
Home Ownership Costs, Mortgages
4 Real Estate-Related Tax Deductions You Shouldn’t Overlook
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You can get some federal tax breaks for owning a home if itemizing deductions on your 2019 tax return makes financial sense.

But that’s a bigger “if” than it used to be.

Although tax deductions for homeowners can add up to thousands of dollars, claiming them is worth the trouble only if all your itemized deductions exceed the IRS standard deduction, which is much larger since the Tax Cuts and Jobs Act of 2017 took effect. Deductions — whether itemized or standard — ease your tax burden by reducing your taxable income.

The standard deduction for the 2019 tax year is $24,400 for married couples filing jointly, $12,200 for single and married individuals filing separately, and $18,350 for unmarried heads of households. That’s up a few hundred dollars from the 2018 tax year and almost double what it was for 2017 in each scenario.

To decide whether to itemize, add up homeowners and other tax deductions you qualify for. If the sum is more than the standard deduction, then itemize. If not, take the standard deduction. Here are the tax deductions for homeowners to include in the calculation.

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» MORE: See the standard deduction in 2019-2020 and when to take it

Mortgage interest

This is usually the biggest tax deduction for homeowners who itemize. A portion of every mortgage payment goes toward interest on the loan. You can deduct the interest you paid up to a limit, which depends on when you took out the mortgage.

  • Dec. 16, 2017, and later: You can deduct the interest on up to $750,000 of mortgage debt (or up to $375,000 if you’re married and filing separately).
  • Oct. 14, 1987, through Dec. 15, 2017: You can deduct the interest on up to $1 million of mortgage debt ($500,000 if married and filing separately).

If you refinanced a mortgage, the limit depends on the old loan’s origination date. If the mortgage predates Oct. 14, 1987, all the mortgage interest may be deductible.

Your mortgage servicer will send a statement each year showing how much interest you paid.

» MORE: Get more details about the mortgage interest deduction

Home equity loan interest

Interest on home equity loans and home equity lines of credit can be deducted, but only if you spent the borrowed money on home improvements. Before the 2017 tax reform law went into effect in 2018, you could deduct the interest even if you used the money for other purposes, such as college tuition.

Your home equity loan or HELOC debt counts toward the total mortgage debt limit for deducting interest. So if your first mortgage is over the deductible limit, then the home equity loan interest won’t be deductible.

» MORE: Learn more about home equity loans and HELOCs

Discount points

If you’re within the limit to deduct all your mortgage interest, you may also be able to deduct discount points you paid when the mortgage closed. Some homeowners buy discount points to lower the mortgage interest rate. One discount point costs 1% of the mortgage amount.

The term “points” can be confusing because some lenders call their fees “loan origination points.” Those points go toward paying the lenders’ costs for providing the loan, and they are not tax-deductible. Only discount points paid to reduce the interest rate can be deducted.

Property taxes

You can get a tax break for paying property taxes, but there’s a limit. You may deduct up to $10,000 ($5,000 if married and filing separately) of property taxes in combination with state and local income taxes or sales taxes.

» MORE: Read more about property taxes and how to save

Home office expenses

You may deduct home office expenses if you’re self-employed and use part of your home regularly and exclusively for your business.

You can use the IRS “simplified method” or your actual expenses to figure out the deduction amount for home office expenses. The IRS website provides details about determining whether your home office qualifies for a tax deduction and has worksheets for calculating the deduction amount.

Medically necessary home improvements

When figuring out your medical expense deductions, you can include the cost of installing health care equipment or other medically necessary home improvements that benefit you, your spouse or a dependent.

Permanent improvements that increase your home’s value are only partly deductible. The deductible cost is reduced by the amount of the property value increase. 

Many improvements to make a home more accessible, such as constructing entrance ramps, widening doorways or installing railings and support bars, usually don’t increase the value of a home and can be fully deducted.

» MORE: Estimate your home’s value

Mortgage insurance premiums

The cost of mortgage insurance is currently deductible. The deduction includes the amount paid for private mortgage insurance for conventional loans and mortgage insurance for FHA loans. It also includes the guarantee fee for USDA home loans and the VA funding fee for VA mortgages. The amount you paid for mortgage insurance is treated as mortgage interest, the IRS says.

To claim this tax deduction for the 2019 tax year, the mortgage insurance contract must have been issued after 2006, and your adjusted gross income must be less than $109,000, or $54,500 if married filing separately, on Form 1040 or 1040-SR, line 8b. The amount you can deduct may be reduced if your adjusted gross income is more than $100,000 ($50,000 if married filing separately).

The mortgage insurance deduction had expired at the end of 2017, but Congress extended it to include premiums paid through the end of 2020.

Homeowner costs that aren’t tax-deductible

Here’s a roundup of expenses homeowners can’t deduct:

  • Home insurance premiums.
  • Homeowner association fees.
  • Transfer taxes or stamp taxes.
  • Cost of utilities.
  • Rent for living in the home before closing.
  • Costs for getting or refinancing a mortgage, such as loan assumption, credit report and appraisal fees.
  • Depreciation.
  • Forfeited deposits, down payments or earnest money.
  • Wages for domestic help.

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