Tax Deductions for Homeowners

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Homeownership brings a range of responsibilities, but it also comes with its fair share of perks. And one powerful tool at your disposal—tax deductions.

These are expenses subtracted from your taxable income to reduce how much you owe, and understanding the ins and outs of deductions can have a big impact on your bottom line.

Here’s a look at common tax deductions for homeowners.

Mortgage Interest Deduction

This tax advantage is an excellent way to save money, but it requires a specific approach.

To benefit from this, you must itemize your deductions instead of taking the standard deduction. In which case, you can then subtract the mortgage interest paid from your taxable income, keeping more cash in your pocket.

Typically, you can write off mortgage interest paid on the first $750,000 of debt for a primary or second home. If you’re married filing separately, you can deduct the interest paid on up to $375,000.

*If you use a home equity loan or line of credit to buy, build, or significantly improve your property, the interest paid on the borrowed money may also be eligible for deduction.

Property Tax Deduction

This is another tax benefit for homeowners who itemize their deductions instead of choosing the standard deduction.

This is a practical strategy for maximizing savings if you pay a significant amount toward property taxes each year. You can deduct up to $10,000, or up to $5,000 if you’re married filing separately.

Mortgage Discount Points

Discount points are fees paid directly to your mortgage lender at closing in exchange for a reduced interest rate on the loan. By itemizing, you can deduct the cost of points from your taxable income.

You can often write off the full amount in the year you paid them.

Home Office Deduction

For anyone working from home, the home office deduction is your secret weapon. It allows you to write off some of your home-related expenses. But only if you have a dedicated space for work.

The standard deduction is $5 per square foot used for business, up to 300 square feet.

Energy-Efficient Home Improvements (Tax Credit)

This tax credit, extending through 2032, allows you to claim up to $3,200 for eligible enhancements. A tax credit is a dollar-for-dollar reduction of income tax owed.

For improvements made after January 1, 2023, the credit is 30% of qualified expenses—covering energy-efficiency improvements, residential energy property expenses, and home energy audits.

Each year, you can claim a maximum credit of $1,200 for eligible energy-efficient home improvements, as well as $2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers. There’s no lifetime dollar limit, so you can claim the maximum credit every year until it expires.

Medical Home Improvements

Improving your home for medical needs can also potentially reduce your taxable income. If home improvements are made for medical purposes (for you, your spouse, or dependents), they are fully deductible—but only if they don’t increase your home’s value.

Examples of eligible deductions include constructing ramps, widening doorways, modifying hallways, installing bathroom supports, lowering kitchen equipment, and more.

Please note that FirstBank Mortgage is not a tax professional. For more information on how to take advantage of tax deductions and reduce your taxable income, speak with a qualified tax advisor.

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Have questions? Contact us for neighborly advice.

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