Owning a home comes with financial responsibilities, but it also brings tax advantages. Understanding which homeowner tax deductions and credits you qualify for can help you maximize your tax savings and avoid missing valuable benefits.
Many homeowners mistakenly assume they can deduct all home-related expenses, but the IRS has specific rules on what qualifies. This article provides a comprehensive guide to the tax breaks available to homeowners in 2024, covering mortgage interest, property taxes, home offices, energy-efficient upgrades, and more.
Let’s explore what you can deduct, what you can’t, and how to make the most of homeownership tax benefits.
Section 1: Mortgage Interest Deduction
✅ What You Can Deduct
One of the most significant tax breaks for homeowners is the mortgage interest deduction. If you itemize deductions on your tax return, you can deduct interest paid on a mortgage loan used to buy, build, or improve a home.
- Maximum Deduction:
- Up to $750,000 of mortgage debt (or $375,000 if married filing separately).
- If you purchased your home before Dec. 16, 2017, the limit is $1 million ($500,000 if married filing separately).
- Eligible Properties: Applies to your first and second home (not investment properties).
- Mortgage Points: If you paid discount points to lower your interest rate, these may be deductible, either in full in the year paid or over the life of the loan.
❌ What You Can’t Deduct
- Mortgage principal payments (only interest is deductible).
- Interest on a home equity loan or HELOC (unless used for home improvements).
- Mortgage interest on rental properties (deducted differently as a business expense).
📌 Tax Tip: Your mortgage lender will send Form 1098 in January, summarizing how much interest you paid.
Section 2: Property Tax Deduction (SALT Cap)
✅ What You Can Deduct
If you itemize, you can deduct state and local property taxes, which fall under the State and Local Tax (SALT) deduction.
- Maximum Deduction: $10,000 ($5,000 if married filing separately).
- Includes: Property taxes on a primary or secondary residence.
❌ What You Can’t Deduct
- HOA fees, condo assessments, or other homeowner fees.
- Utility costs like water, sewer, or trash collection.
- Property transfer taxes paid when buying/selling a home.
📌 Important: The $10,000 SALT cap is set to expire in 2025, unless Congress extends it.
Section 3: Home Office Deduction
✅ What You Can Deduct (Self-Employed Homeowners)
If you work from home and are self-employed, you may be eligible for a home office deduction. The space must be exclusively used for business and be your principal place of business.
Deduction Options:
- Simplified method: $5 per square foot (up to 300 sq ft, max deduction: $1,500).
- Actual expense method: Deducts a percentage of home expenses (e.g., utilities, insurance, repairs).
❌ What You Can’t Deduct
- Home office expenses if you are a remote employee (TCJA removed this deduction in 2018).
- Any portion of your home used for both personal and business purposes.
📌 Tax Tip: Keep records of home office expenses and calculate the square footage correctly.
Section 4: Capital Improvements vs. Repairs
✅ Capital Improvements That Increase Home Value
While home repairs are not tax-deductible, certain capital improvements can provide tax benefits when selling your home. These expenses increase your home’s tax basis, reducing capital gains tax when you sell.
Examples of Capital Improvements:
- Major renovations: Kitchen or bathroom remodels.
- Structural upgrades: New roof, HVAC system, or plumbing.
- Accessibility modifications: Installing wheelchair ramps or widening doorways.
❌ What You Can’t Deduct Immediately
- Routine home repairs (e.g., fixing leaks, painting).
- Cosmetic improvements that don’t add value.
📌 Tax Tip: Keep receipts and records for all capital improvements to lower taxable gains when you sell.
Section 5: Medical-Related Home Modifications
✅ What You Can Deduct (If Medically Necessary)
Some home modifications may qualify as a medical expense deduction if they are medically necessary and prescribed by a doctor.
Eligible Modifications:
- Wheelchair ramps, stairlifts, or widening doorways.
- Bathroom grab bars and accessible showers.
- Lowering cabinets for disability access.
❌ What You Can’t Deduct
- Home upgrades made for convenience rather than medical necessity.
- Costs reimbursed by insurance.
📌 Tax Tip: These expenses must exceed 7.5% of adjusted gross income (AGI) to qualify.
Section 6: Green Energy Tax Credits
✅ Energy Tax Credits for Homeowners
Unlike deductions, tax credits directly reduce what you owe in taxes. The government offers significant tax credits for green energy upgrades.
1. Residential Clean Energy Credit (30%)
- Covers solar panels, wind turbines, geothermal systems, and battery storage.
- Available through 2032.
2. Energy Efficient Home Improvement Credit (Up to $1,200 Annually)
- Covers insulation, energy-efficient doors/windows, and HVAC systems.
- Heat pumps & biomass stoves qualify for up to $2,000.
3. EV Charger Tax Credit (30%)
- 30% of installation costs for home EV charging stations (max: $1,000).
📌 Tax Tip: These credits are not refundable, meaning they can’t exceed the taxes you owe.
Section 7: Other Tax Considerations for Homeowners
📌 Capital Gains Exclusion:
- When selling a primary residence, homeowners can exclude up to:
- $250,000 (single filers) / $500,000 (married) in gains.
- Must have lived in the home for 2 out of the last 5 years.
📌 Mortgage Insurance Deduction:
- Deduction for PMI (private mortgage insurance) expired in 2021 (Congress may extend it).
📌 Casualty Loss Deduction:
- Only available if your home is damaged in a federally declared disaster.
Keep in mind that some deductions you take now could hurt you when you sell the home.
For example, taking an office in the home deduction or depreciation you may have taken on an investment property that later becomes your residence, these immediate benefits can reduce your tax basis and increase your Capital Gains Tax when you sell. Some homeowners, usually those that have owned their home for decades, have such a large tax bill for capital gains when they sell that they needs specialized tax advice.
Two alternatives to paying a large capital gains tax may be to die in the property and let your heirs under your will get a “stepped up tax basis to current fair market value; or in some cases a homeowner can move out, use the property for rental income for a year for a certain number of years and then sell the property as investment property and roll the capital gains into a replacement property. This latter strategy may be facilitated by a 1031 Exchange.