It’s just about time to file your taxes, so we thought we’d compile a list of home tax deductions you shouldn’t miss! Missing a deduction is like giving up free money, so if you own a home, keep reading. (We’ll also mention some ways the recent tax bill will affect these same deductions next year.)
Also, important disclaimer: We aren’t tax experts, so please check in with your friend tax advisor!
Did you know you can take a deduction for the property taxes you pay on all the properties you own? You can also deduct any state or local income taxes you pay. It’s a pretty sweet deal.
Net year, you can only deduct the first $10,000 of taxes, including state and local income taxes. So enjoy this generous tax break while you can!
Home Office Deduction
Ah, the ubiquitous home office deduction. This one is notorious for being taken when it shouldn’t be. In fact, starting next year, only people who actually have to work from home can take this deduction. If you have an office elsewhere that you could use but don’t want to, this deduction won’t be an option for you anymore.
You can take $5 for every square foot of your office space, up to 300 square feet. To qualify, it has to be dedicated home office space used only for work. This means that even if you work 40 hours a week out of your guest room, you can’t take the deduction. You can’t even send personal emails from your office space.
If you use just a part of a room exclusively for work, you can deduct the square footage of that portion of the room.
You can deduct interest on up to a million dollars of mortgage debt. This is especially valuable for new homeowners, who pay more in interest at the beginning of their loan than they do at the end. (This mortgage calculator shows you exactly how your loan amortizes.)
Starting next year, you’ll only be able to deduct interest on the first $750,000 of your loan. But this only applies if your loan was closed after December 15, 2017. If you closed before that date, nothing changes for you.
Home Equity Loans
You can also take a tax deduction on home equity loans—interest on the first $100,000 is deductible for married, joint filers.
But next year, you don’t get a tax break at all unless your home equity loan was used for home improvements. This applies to all loans, regardless of the date they were taken out.
Private Mortgage Insurance
Private mortgage insurance, or PMI, is something you pay when you put less than 20% down on your home. It protects the lender in case you default on the loan. This can add a hefty sum to your monthly mortgage payment.
The good news is that you can take a home tax deduction for PMI. However, note that this deduction has not been renewed for the 2018 year (though Congress could decide to extend it at some point).
If you made energy-efficient improvements on your home (like solar panels or solar water heaters), you get a home tax deduction.
Solar electric panels and water heaters get a credit of 30% of the cost of the equipment and installation. They have to generate at least half of the energy used by the home, which also has to be your primary residence.
This credit varies depending on when you install the equipment, and the credit will continue to decrease until it ends in 2021. Here’s more info about energy-efficient upgrades from the IRS.
If you paid mortgage points at closing to lower your interest rate, the cost of those points is tax deductible.
You do have to meet certain criteria to deduct them all up front. For a second home and often a refinance, you have to amortize them over the life of the loan. See more guidelines from the IRS here.
If you sold your home, you may be able to deduct your selling costs from the profit you earned on the sale.
This only applies if your profit on the sale isn’t already tax-exempt under the capital gains exclusion. Take the original purchase price, plus the cost of any capital improvements, and then subtract depreciation. Anything you make over that amount is potentially taxable.
But married taxpayers get to keep up to $500,000 in profit tax free, and single filers get to keep up to $250,000.
If your profit is above those amounts, you can deduct real estate commissions, title insurance, legal fees, advertising costs, escrow fees, inspection fees, and more.
If you moved for a new job, you might be able to deduct some of those costs. The new job has to be at least fifty miles further away from your home than the old job was. If it is, you can deduct expenses like lodging and storage for your household goods. See more info here.
Sadly, this deduction will not be available starting next year.
Not Getting Any Home Tax Deductions?
If you’re not getting any home tax deductions because you don’t own a home, we can fix that! Give us a call—we’re here to help you find the home of your dreams (and start taking some of these tax breaks).