You shouldn’t buy a house just because you’ve heard about the tax breaks or incentives. However, when you do purchase a piece of real estate and enter the world of homeownership, the tax deductions are worth your attention. Whether your home is a condo or co-op, mobile home, single-family house, or townhouse, any housing structure you own provides home-related deductions.

To claim tax breaks on owning a home, you must forfeit the standard deductions and opt for an itemized deduction. The disadvantage here is that you only see a return if your itemized deduction exceeds the amount of the standardized deduction. On the up side, your charitable contributions, state income tax, and other items become tax deductible. Here are some of the things you can deduct as a homeowner.

Mortgage Loan Interest

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When you make your loan payment each month, a portion of your payment is applied to principal and directly pays against what you borrowed. Another part of the payment is for interest. Whether you opted for a fixed interest rate or variable interest rate, you pay interest each month. In January, your lender will provide you with a Form 1098 that details your interest payments for the previous year, which are tax deductible.

Points Deduction

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When you borrowed money from the lender to purchase your home, you may have had the opportunity to pre-pay a portion of the interest with discount points. A discount point, in mortgage terms, equals one percent of the total amount borrowed. You can pay a certain number of discount points that are applied to your interest to lower your monthly mortgage points. Because the points are pre-paid interest, those points are tax deductible.

Private Mortgage Insurance Deduction

Many first-time homebuyers aren’t prepared to pay a twenty percent down payment on the property they purchase. Some lenders make exceptions, accepting lower down payments, but requiring the buyer to secure private mortgage insurance or PMI. Private mortgage insurance is established to provide protection for the lender if the buyer defaults on payments. In times past, portions of the private mortgage insurance were tax deductible if the homeowner met certain requirements. However, this tax benefit is being phased out, so don’t count on that deduction.

Property Tax Deduction

One of the downsides to owning a home is paying property taxes. However, that becomes a plus during tax season when the property taxes you paid become a deduction. Furthermore, when you bought your home, the seller likely pre-paid a portion of the taxes for that year, and you probably reimbursed the seller for those payments in your purchase. Those taxes are also deductible.

Energy Efficient Systems

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You may find yourself investing in upgrades for your home, including energy efficient systems such as solar power. Not only will you enjoy the advantages of lower energy bills, but you may also receive a bump back come tax season.

Home Office Deductions

More and more, people are working from home either part or all of the time. If you have a home office, a designated room used solely for business purposes, you can receive deductions based on square footage.

Age in Place Deductions

For homeowners who intend on residing in their homes into retirement, or who are providing in-home care for elders such as live-in parents, certain renovations such as wheelchair ramps or bathroom grab bars may be deductible. However, the improvements must cost more than ten percent (7.5 percent if the homeowner is over the age of 65) of your gross adjusted income.

Home Equity Line of Credit

If you’ve taken a line of credit against your equity, the interest you pay on that line of credit is deductible, similar to the interest on your mortgage payment.

Tax Exemptions for the Sale of Your Home

Capital gains tax is something homeowners may sometimes have to pay on the profit earned from the sale of their home. However, if certain requirements are met, such as owning and living in the home for at least two years of the five years preceding the sale, then you may be exempt from paying on profits up to $250,000, or doubled to $500,000 if you’re married and filing a joint return.


One hundred dollar bills growing out of the ground with home in the background

Are tax benefits good enough reasons to buy a home? No. It doesn’t make sense to purchase a home just so that you can get tax breaks. However, as a homeowner, you’re entitled to certain kickbacks from the government if you itemize your taxes and meet certain requirements.  Talk with your real estate agent and accountant to determine what tax rewards you may earn as a homeowner.

Your real estate agent is the best source of information about the local community and real estate topics. Give Renee Degitz a call today at 217-440-9797 to learn more about local areas, discuss selling a house, or tour available homes for sale.

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