10 Homeowner Tax Credit and Deductions To Take Advantage of This Tax Season

Spring is a super exciting season that brings sunshine, longer days, and warmer weather with it, but it also brings a less exciting thing… tax season. 🫣

While more sunshiney days are upon us, tax season is too and if you’re a homeowner – OR planning to become one this year – there are several tax benefits you should be aware of that aren’t always talked about!

Yep, that’s right, I said benefits – not everything during tax season has to be a dread! 

Many homeowners miss out on valuable deductions and credits simply because they don’t know they exist. So, whether you’re a first-time homebuyer or a seasoned homeowner, keep reading for some key tax credits and deductions that could help you save money this tax season.

10 Homeowner Tax Credit and Deductions You Might Not Know About

1. Mortgage Interest Deduction

One of the biggest tax breaks for homeowners is the mortgage interest deduction. With this deduction, if you have a mortgage on your primary or secondary home, you can often deduct the interest paid throughout the year.

This deduction applies to mortgages up to $750,000 (or $1 million if you purchased before December 15, 2017). This can significantly reduce your taxable income and provide substantial savings, especially in the early years of your mortgage when interest payments are highest.

2. Property Tax Deduction

Another common tax deduction for homeowners is the property tax deduction, where you can deduct up to $10,000 in state and local property taxes ($5,000 if married filing separately). 

Property tax rates vary by location, but this deduction can help offset the cost of owning a home. To ensure that you claim the full amount allowed, be sure to keep records of your property tax payments!

3. First-Time Homebuyer Programs

In the past, there was a federal First-Time Homebuyer Credit and though that ended in 2010, there are still state and local programs that offer financial benefits.

Some states provide tax credits or grants to first-time buyers, helping to lower the cost of homeownership. Additionally, first-time homebuyers who use an IRA for a down payment can withdraw up to $10,000 penalty-free.

4. Homestead Exemption

A tax benefit that often gets overlooked is the homestead exemption, which can reduce the taxable value of your home, lowering your property tax bill. The amount and eligibility requirements vary by state, but overall it’s a valuable benefit for homeowners.

Some states also offer additional exemptions for seniors, veterans, or disabled individuals, which is why working with a local tax professional is key to ensure that you receive all of the benefits available to you!

5. Mortgage Points Deduction

Mortgage points were a huge topic of conversation last year (so much so that I actually wrote a whole blog post about them!) and if you were one of the home buyers to take advantage of using mortgage points, there’s a potential tax deduction waiting for you!

This deduction is typically available in the year you paid for the points, but in some cases, it can be spread over the life of the loan. Your tax professional will be able to help you determine if you qualify.

6. Energy-Efficient Home Improvement Credits

Most people know that making home improvements can increase their ROI when they sell their home, but did you know that you could also be rewarded from a tax perspective?

If you install solar panels, energy-efficient windows, or insulation, you could qualify for tax credits!

The federal Residential Clean Energy Credit allows homeowners to claim 30% of the cost of solar, wind, and geothermal energy systems through 2032 and the Energy Efficient Home Improvement Credit provides up to $1,200 annually for eligible home improvements.

7. Home Office Deduction

Most people are aware of this since most of the world shifted to work-from-home life a few years ago, but in case you’re one of the few that don’t know, if you work from home and have a dedicated office space, you may qualify for a home office deduction.

This deduction allows you to write off a portion of your home expenses, including utilities, rent (for renters), or mortgage interest, based on the square footage of your office space. This can be particularly beneficial for self-employed individuals.

8. Capital Gains Exclusion

Sellers, this one’s for you! 📣

When you sell your primary home, you can exclude up to $250,000 ($500,000 for married couples) in capital gains from your taxable income, as long as you’ve lived in the home for at least two of the last five years. This can be a major tax benefit for homeowners who sell their properties at a profit!

9. Medical Home Improvements Deduction

If you make home modifications for medical reasons, such as installing ramps, widening doorways, or adding stairlifts, you may be able to deduct these expenses as medical costs. To qualify, the modifications must be deemed medically necessary and not increase the home’s value!

10. Rental Property Deductions

And lastly, if you rent out part of your home, you may be eligible for additional deductions. 

Rental property owners can deduct expenses such as property management fees, maintenance costs, and depreciation. These deductions can offset rental income and reduce taxable income.

Overall, homeownership comes with many financial responsibilities, but it also brings valuable tax benefits that many people aren’t fully aware of!

Understanding these tax deductions and credits can help you maximize your savings and reduce your tax burden.

To take full advantage of what’s available to you, make sure you consult with a local tax professional so you don’t miss out on the benefits that apply to your specific area. 

And as always, if you’re looking to buy or sell a home in Billings, MT, I’m here to help. 👋