Tax benefits of owning a home

While owning a home comes with many benefits (a garage, big yard, the ability to paint your walls any color) another benefit are the many tax deductions made available to homeowners.

This should not be construed as financial advice. You should always defer to your tax professional or CPA with any questions regarding available deductions.  

With all the tax law who can make heads or tails of what is deductible? Are there other housing expenses that can be deducted?  Maybe home decorating and recent home updates?

While you’ll need to speak with your tax professional  about additional miscellanoues deductions, here some of the costs/fees you can deduct on your federal taxes:

Mortgage Interest

The IRS will allow you to deduct the mortgage interest you pay from your taxable income if:

  • You file a 1040 and you itemize your deductions on your Schedule A (this is included in the 1040 forms).
  • You are deducting interest for your primary home or second home. There are no restrictions on the type of home, as long as it has sleeping, cooking and restroom facilities.

Additionally, you can deduct up to $100,000 in interest on a home equity line of credit (HELOC)

Property Taxes

In most cases, you can deduct your property taxes. There are some exclusions so be sure and speak with your tax professional and read the IRS’s publication 530 which thoroughly explains the details.

Sale of Property

The IRS allows you to exclude from your income, up to a specified amount, proceeds from the sale of your home – here are the details:

  • You must have lived in your home, as your primary residence, for at least two years.
  • If married, you can exclude up to $500,000 filing jointly.
  • If single, you can exclude up to $250,000 filing single.
  • You or your spouse cannot have received, and excluded, proceeds from the sale of another home while taking advantage of the sale of your primary home.

The best part, the IRS does not have a lifetime limit on this type of income exclusion.

Origination Fees  Paid to Lender

While the IRS will allow you to deduct the origination fees you pay related to your home loan there is a catch, under certain conditions, you will have to spread the deduction over the life of the loan.

You can deduct all of the points you paid in the same year if:

  • The loan you closed is secured by your primary residence.
  • Your loan was used to buy or build your primary residence.
  • Paying origination fees is an established business practice in your area.
  • The amount of points you paid are typical for your area.
  • You report your income and deduct your expenses in the same year in which you received the income and expense.  The IRS considers this a cash method of accounting.
  • You contributed, from your own funds, as much as the amount of points charged or more. To be clear, your contribution includes: earnest money, down payment, deposit into escrow and other monies you contributed when attaining your home loan.
  • The amount of points you paid must be clearly stated on your settlement statement (HUD-1) as points charged.

If your points do not qualify, the IRS will require you amortize your deductions over the life of the loan. Here’s how it works:

Points Paid: $4000

Loan Product: 30 year fixed (360 months)

Now for the math:

$4000 (points) / 360 months (30 years) = $11.11 per month

Annual Deduction: $133.32

If you would like to confirm your deduction, visit the IRS’s publication or this chart.  Be sure and confirm you meet all deduction requirements so it’s done properly.

Learn more about origination fees from the Consumer Financial Protection Bureau  (CFPB). 

Miscellaneous Deductions

Don’t despair, there are more deductions. To learn more see the links below:

Work Related Moving Expenses

PMI – Private Mortgage Insurance

Mortgage Prepayment Penalty

Late Payment Charge on Mortgage Payment

Transfer Taxes (See page 3)

As mentioned before, this information should not be construed as financial advice. When completing your taxes it’s best you speak with your tax professional.

Take a look at our calculator to see how much you can save as a homeowner.


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