Tax Benefits of Owning A Home

When it comes to taxes and being a homeowner, your mortgage can provide some benefits. Homeowners qualify for some tax deductions that can lower your tax payment or increase your return, but whether or not you qualify for the deductions is a little complicated.

In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the standard deduction taxpayers can take on their income taxes. The deduction went from $6,500 for individual taxpayers to $12,000, with similar shifts for heads of households and those filing jointly. In 2022, those standard deductions increased to $12,950 for individuals and $25,900 for those filing jointly.

Why is the standard deduction important when it comes to home mortgages? The increase in deductions was significant enough that it eliminated the need for many taxpayers to itemize their taxes. That’s important to know when considering how you want to file your taxes, especially as a homeowner. Tax deductions that were once considered attractive to homeowners are no longer necessary for many, but it might still be worth your time to consider the following deductions.

The Mortgage Interest Deduction

Once touted by real estate agents, mortgage lenders and others, the mortgage interest deduction was an attractive deduction for homeowners. Homeowners could deduct the interest paid on a home mortgage from their taxes. Since homeowners are often paying mostly interest in the first years of owning a home, this was a nice benefit. However, the TCJA also lowered the mortgage interest deduction limit from $1 million to $750,000. This, combined with the raised standard deduction, has caused the use of this deduction to drop significantly.

The Property Tax Deduction

This deduction allows homeowners to deduct up to $10,000 for property taxes paid to state and local governments. However, taking this deduction requires you to itemize your taxes and forgo the standard deduction. The $10,000 limit also means you might not get to deduct everything you paid if your total amount was higher than $10,000. If you decide to itemize your taxes, this deduction combined with others might be worth your time.

The Home Equity Loan Deduction

The home equity loan deduction is another deduction impacted by the TCJA. If you’ve taken out a home equity loan, you can deduct the interest you have paid on the loan, but you are only allowed to do so if you used the loan to make home improvements. If you used the loan for other reasons, that interest isn’t deductible.

The Home Improvement Deduction

Home improvements are another tricky area for tax deductions. Home improvements are deductible, but you must be able to prove these improvements are necessary. A bathroom remodel in itself may not qualify, but a remodel that makes the bathroom handicap accessible could qualify. Be sure to check with a tax professional on what qualifies before you take the home improvements deduction.

The Home Office Deduction

In the past few years, more people worked from home than ever before, but simply working from home doesn’t mean you can take the home office tax deduction. Your home office must be a space used only for work, with equipment used only for that purpose. So, if you work in a shared space your family also uses, or with a personal laptop and other personal equipment, then this deduction may not apply. If you plan on working from home in the future, find a way to create a home office exclusively for work that would allow you to take this deduction.

There are a few other things to consider when preparing to file taxes as a homeowner. If you carry private mortgage insurance, then the interest you pay is deductible. Utilizing one or two of these deductions isn’t likely to get your deductions higher than the standard amount, but if you’ve had large medical or dental payments this year that you paid out of pocket, or large charitable donations, then itemizing your deductions and including these home, deductions might be more advantageous than taking the standard deduction. Consult with your tax professional to see if itemizing your tax return could help you benefit more than taking a standard deduction.

The most important step in the process is to consult a tax professional to see if itemizing your tax return, to include these homeowner-based tax deductions could benefit you.

Regardless of the way you choose to file taxes this year, remember as a homeowner you’re still building valuable equity in your home each year you own it.

Meet the author

A little about Kimberly Mitchell

Kimberly S. Mitchell loves journeys, real or imagined. She has hiked the Inca Trail, walked into Panama on a rickety wooden bridge and once missed the last train of the night in Paris and walked several miles home (with friends). She believes magic can be found in life and books, loves to watch the stars appear, and still dreams of backpacking the world. Now she writes adventures to send her characters on journeys, too. Pen & Quin: International Agents of Intrigue – The Mystery of the Painted Book is her debut novel. Find out more at KSMitchell.com.