Tax season is here, which means some people are already planning what they’ll do with their refunds.
If you’re a homeowner, this time of year can feel even more confusing. You’ve got paperwork coming in the mail, numbers you don’t recognize, and a lot of “can I write this off?” moments. However, it doesn’t have to be complicated.
Before you file, here are a few things you don’t want to overlook. Keep in mind, it’s important to discuss your tax strategies with a certified tax professional.
Mortgage Interest Deduction (Basics)
Some people take the standard deduction because it’s simple, and for many households, it makes sense. But depending on your situation, claiming the mortgage interest deduction could lower your tax bill more.
With interest rates higher, the amount you paid in interest this year might be significant enough to itemize.
Mortgage interest is the interest portion of your home loan payments, and you can deduct it as long as the loan is secured by your primary home (or a second home in some cases). You’ll want to look for Form 1098 from your lender, which shows how much interest you paid for the year.
Property Tax Deductions and Common Limits
Even if you’re familiar with the mortgage interest deduction, you might not know about other homeowner expenses that matter at tax time, like property taxes.
If you itemize deductions, you may be able to deduct the state and local property taxes you paid on your home.
One important thing to know is the SALT cap, which limits the total deduction for state and local taxes (including property taxes) to $10,000 per return. Also, only taxes paid during the year count, not what’s still owed.
Points Paid at Closing
Points are upfront fees you pay to your lender, usually to get a lower interest rate on your mortgage. They can be beneficial because they reduce what you pay in interest over time, which can add up if you plan to stay in the home for a while.
Points paid on a purchase of your primary residence are generally deductible (if you itemize). In many cases, you can deduct the full amount in the year you bought the home, as long as the points meet IRS requirements.
If you paid points on a refinance, they typically have to be deducted over the life of the loan.
What First-Time Homeowners Often Miss
Be mindful of other possible credits and deductions available to you, for example:
• Energy Efficient Home Improvement Credit. Covers upgrades like insulation, air sealing, energy-efficient windows, and exterior doors. You can claim 30% of the cost, up to $1,200.
• High-Efficiency Heat Pump Credit. Available to homeowners who install qualifying heat pumps. You can claim 30% of the cost, up to $2,000 per year.
• Residential Clean Energy Credit. This credit applies to solar panels, geothermal systems, wind turbines, solar water heaters, and battery storage systems. You can claim 30% of the total installation cost, and there is no annual dollar limit. Available for primary homes and second homes.
Make sure you also understand the difference between a deduction and a credit. A deduction lowers your taxable income, while a credit reduces your tax bill dollar for dollar.
The home office deduction might apply, too, if you work from home or run a business – but only if the space is used regularly and exclusively for work.
The rules are precise, so don’t guess when completing your return. When in doubt, always check with a tax professional to make sure you’re not missing anything, or claiming something you shouldn’t.
If you’re thinking about buying a home this year, having the right information can make a big difference. The loan experts at FirstBank Mortgage can help you understand your mortgage options.
