Home mortgage interest is one of the primary tax-deductible expenses, allowing you to deduct the interest paid on your loan for your primary residence. Property taxes also qualify for deductions, helping to lower your taxable income based on what you pay annually to local governments. If you have a home office, you may deduct related expenses, including a portion of utilities, internet, and maintenance costs associated with that space. For those with rental properties, expenses such as repairs, maintenance, and depreciation are considered deductible. Always consult with a tax professional to ensure you're maximizing your deductions while complying with IRS guidelines.
What House Expenses Are Tax Deductible
Mortgage interest
Mortgage interest is a significant tax-deductible expense for homeowners in the United States, typically allowing you to deduct interest paid on loans up to $750,000 for homes purchased after December 15, 2017. This deduction can lead to substantial savings, especially in the early years of your mortgage when interest payments are at their highest. If you itemize your deductions on your federal tax return, you must report the total mortgage interest paid, as reflected on Form 1098 provided by your lender. Understanding how this deduction works can enhance your financial strategy when managing home expenses and tax liabilities.
Property taxes
Property taxes are often one of the primary tax-deductible expenses for homeowners, enabling significant savings on your tax return. According to the IRS, you can deduct the amount you pay in property taxes on your main home as well as any additional properties you own, provided they are used for personal use rather than as investment properties. For the tax year 2023, the cap for state and local tax (SALT) deductions, which includes property taxes, is set at $10,000 for single filers and married couples filing jointly. Keeping accurate records of your property tax payments is essential for claiming this deduction effectively on your next tax return.
Home office expenses
Home office expenses can significantly reduce your taxable income if you qualify. You can deduct a portion of your mortgage interest, property taxes, and utilities based on the square footage of your home office compared to your entire home. Expenses like office supplies, internet service, and professional services that directly relate to your business activities are also fully deductible. Ensure you maintain accurate records, as the IRS requires proper documentation to substantiate your home office deductions.
Energy-efficient home improvements
Energy-efficient home improvements can significantly reduce your tax liability. For the tax year 2023, you may be eligible for a federal tax credit of up to $1,200 when you install energy-efficient windows, doors, or insulation. If you invest in solar energy systems, you can claim a credit amounting to 30% of the installation costs under the solar Investment Tax Credit (ITC). Keep records of all improvements and receipts to maximize your deductions and ensure compliance with IRS regulations.
Mortgage insurance premiums
Mortgage insurance premiums are a significant tax-deductible expense for homeowners. If your adjusted gross income is below $100,000, you may claim a deduction for premiums you pay on privately insured mortgages or through FHA loans. This deduction can help reduce your taxable income by up to 100% of the premium amount, providing substantial savings annually. For the 2022 tax year, ensure you keep accurate records of your mortgage insurance payments to maximize your deductions on your federal income tax return.
Medical home improvements
Home improvements made for medical purposes can be tax-deductible, particularly if they enhance the accessibility or functionality of your living space. For instance, installing ramps (costing between $1,000 and $5,000) or widening doorways (averaging $1,500 to $2,500) directly related to a medical condition are eligible deductions. If major remodeling is performed to accommodate medical needs, such as adding a bathroom for easier accessibility, you may deduct a portion of those expenses as well. Ensure to retain all receipts and any documentation from healthcare providers that substantiates the necessity of these improvements for your health.
Rental property expenses
Rental property expenses can significantly reduce your taxable income, making it essential to understand which costs are deductible. You can deduct mortgage interest, property management fees, repairs, and maintenance costs, which collectively account for a substantial portion of your expenses. Additionally, depreciation allows you to spread the cost of your property over 27.5 years, providing further tax relief. Remember to keep detailed records of your expenses to maximize deductions and ensure compliance with IRS regulations.
Points paid on a mortgage
Points paid on a mortgage can significantly reduce your taxable income, making them an important aspect of homeownership tax deductions. Each point typically costs 1% of your loan amount and equates to a reduction in the interest rate you'll pay over time. If you itemize your deductions, the IRS allows you to deduct the full amount of points paid in the year you purchase your home, provided certain criteria are met. For subsequent refinances, the points can be deducted over the life of the loan, offering ongoing tax benefits as you manage your house expenses.
Home equity loan interest
Home equity loan interest can be tax deductible if you use the funds to buy, build, or significantly improve your home. To qualify, the total amount of all loans must not exceed $750,000 for married couples filing jointly or $375,000 for single filers, reflecting limits established in the Tax Cuts and Jobs Act of 2017. You can itemize your deductions on Schedule A of your tax return to claim the interest, making it essential to keep accurate records of your loan usage. Consult a tax professional to ensure you're compliant and maximizing your deductible expenses related to home equity loans.
Depreciation of rental property
Depreciation of rental property is a significant tax deduction that can reduce your taxable income, allowing you to claim a portion of the property's value over a 27.5-year period for residential properties. If you own a rental property that you purchased for $300,000, you can deduct approximately $10,909 annually, calculated by dividing the property value by the depreciation period. This expense accounts for the wear and tear on the property, making it a critical factor for property owners looking to maximize their tax benefits. Other common deductions related to rental properties include mortgage interest, property taxes, and maintenance costs, all of which can further enhance your overall tax savings.