Owning a home is a significant milestone, but it also comes with financial responsibilities. Fortunately, the U.S. tax code offers several deductions that can help homeowners save money. Understanding these deductions can make a big difference when filing your taxes. Here are some key tax deductions every homeowner should know about:

1. Mortgage Interest Deduction

One of the most substantial tax benefits for homeowners is the mortgage interest deduction. Homeowners can deduct the interest paid on mortgages up to 750,000 (or 1 million if the loan was taken out before December 15, 2017). This deduction applies to primary and secondary residences, making it a valuable benefit for those with vacation homes as well. Be sure to keep track of your mortgage interest statements (Form 1098) provided by your lender, as they detail the amount you can deduct.

2. Property Tax Deduction

Homeowners can also deduct property taxes paid to state and local governments. The Tax Cuts and Jobs Act (TCJA) of 2017 capped the total state and local tax (SALT) deduction at 10,000 per year(5,000 if married filing separately). This includes property taxes, state income taxes, and sales taxes. While this cap may limit the deduction for some homeowners in high-tax states, it still provides significant savings for many.

3. Home Office Deduction

If you use part of your home exclusively for business purposes, you may qualify for the home office deduction. This deduction allows you to write off expenses related to the business use of your home, such as utilities, insurance, and repairs. There are two methods to calculate this deduction: the simplified method (a standard deduction of $5 per square foot of home used for business, up to 300 square feet) or the regular method (based on the percentage of your home used for business). Be sure to meet the IRS requirements, as the space must be used regularly and exclusively for business.

4. Energy-Efficient Home Improvements

Homeowners who make energy-efficient upgrades to their homes may qualify for tax credits. The Residential Energy Efficient Property Credit allows you to claim a percentage of the cost of solar panels, solar water heaters, wind turbines, and geothermal heat pumps. Additionally, the Nonbusiness Energy Property Credit provides a credit for certain energy-efficient improvements, such as windows, doors, and insulation. These credits not only reduce your tax bill but also contribute to long-term energy savings.

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5. Mortgage Insurance Premiums

If your down payment was less than 20% when you purchased your home, you likely pay private mortgage insurance (PMI). The good news is that PMI premiums are deductible, provided your adjusted gross income (AGI) is below a certain threshold (100,000 for single filers and 200,000 for married couples filing jointly). This deduction phases out as your income increases and is unavailable for high-income earners.

6. Home Equity Loan Interest Deduction

Interest on home equity loans or lines of credit (HELOCs) may also be deductible, but only if the funds are used to buy, build, or substantially improve the home that secures the loan. The TCJA eliminated the deduction for interest on home equity loans used for personal expenses, such as paying off credit card debt or funding a vacation.

7. Capital Gains Exclusion

When you sell your primary residence, you may be able to exclude up to 250,000 (500,000 for married couples filing jointly) of the capital gains from your taxable income. To qualify, you must have owned and lived in the home for at least two of the last five years. This exclusion can save homeowners thousands of dollars in taxes when selling their homes.

Conclusion

Homeownership comes with a variety of tax benefits that can help reduce your overall tax liability. By taking advantage of deductions like mortgage interest, property taxes, and energy-efficient upgrades, you can maximize your savings. However, tax laws are complex and subject to change, so it’s always a good idea to consult with a tax professional to ensure you’re claiming all the deductions you’re entitled to. With careful planning and documentation, you can make the most of your homeownership journey while keeping more money in your pocket.