Editor’s note: As the April 15 tax deadline approaches, we thought it would be a good time to do a rerun of tax-deductible home-buying expenses. Hope this helps ease your tax pain!
It’s tax time and homeownership comes with numerous perks, one of them is the potential to benefit from tax deductions. While not every expense related to buying a home is tax-deductible, there are several key items that can contribute to significant savings this tax season. Let’s explore the home-buying expenses that may qualify for tax deductions, helping you maximize the financial advantages of owning a home.
1. Mortgage Interest
Arguably, the most well-known and significant deduction for homeowners is the mortgage interest deduction. Homeowners can deduct the interest paid on their mortgage loan, subject to certain limits. This deduction is applicable to both primary and secondary residences, potentially leading to substantial tax savings.
2. Points Paid at Closing
If you paid discount points (if you closed later in 2023, you absolutely did) to secure a lower interest rate on your mortgage, those points may be deductible. Each point is typically equal to 1% of your loan amount, and as long as the points are standard practice in your area and the loan meets certain criteria, you may be eligible to deduct them.
3. Property Taxes
Property taxes paid on your home are generally tax-deductible. These taxes fund local services and infrastructure, and the IRS allows homeowners to deduct these expenses from their taxable income. It’s important to note that there are limitations on the total amount of state and local taxes that can be deducted. One more reminder for property taxes, make sure you have filed for the homestead exemption on your primary residence, generally, the deadline will be in April to qualify for the current year.
4. Home Office Expenses
If you use a portion of your home exclusively for business purposes, you may qualify for a home office deduction. This can include a percentage of your utilities and home maintenance costs. However, the space must be used regularly and exclusively for business activities to qualify.
5. Private Mortgage Insurance (PMI)
For homeowners who put less than 20% down on their home and are required to pay private mortgage insurance, there’s good news. The PMI deduction allows eligible taxpayers to deduct the cost of PMI premiums, providing relief for those who haven’t yet built significant equity in their homes.
6. Energy-Efficient Home Improvements
Certain energy-efficient home improvements, such as installing solar panels, energy-efficient windows, or a solar water heater, may qualify for tax credits. While not a direct deduction, these credits can directly reduce your tax liability.
7. Home Equity Loan Interest
Interest paid on a home equity loan or home equity line of credit (HELOC) may be deductible in certain circumstances. However, the Tax Cuts and Jobs Act of 2017 imposed stricter rules on the deductibility of home equity loan interest, so it’s important to consult with a tax professional to determine eligibility.
8. Moving Expenses (in Some Cases)
While the moving expense deduction was suspended for most taxpayers under the Tax Cuts and Jobs Act, certain members of the military may still be eligible to deduct moving expenses. It’s advisable to check current tax laws and consult with a tax professional for the latest information.
It is encouraging to know that homeownership can bring not only the satisfaction of having a place to call your own, but also potential tax benefits. Leveraging these deductions requires careful record-keeping and an understanding of current tax laws. It’s highly recommended to consult with a qualified tax professional to ensure you’re taking advantage of all eligible deductions and maximizing your potential savings as a homeowner.
