Already have an account?
Money

Homeowners Can Get These 5 Tax Breaks — Find Out if You Qualify (And How To Make the Most of Them)

There are benefits for your investment.

Owning a home is a big responsibility. Fortunately, the government offers certain incentives in
the form of tax breaks to make homeownership more financially feasible. Review the below list to learn which tax breaks you qualify for and how to make the most of them.

1. Interest on Your Mortgage and/or Home Equity Line

The biggest tax benefit for most homeowners is the interest you pay on your mortgage — you can deduct all interest paid in a year on mortgages of up to $750,000. You generally don’t need to calculate this amount yourself; each year, your lender should send you a Form 1098, which tallies the amount of mortgage interest you’ve paid for the year. If you bought a new home within the tax year, be sure to include any interest you paid at your closing — check your settlement statement to find the amount if it’s not listed on your 1098.

Mortgage interest on second homes is also tax-deductible, so long as your combined debt for both homes doesn’t exceed $750,000. Generally speaking, you can also deduct the interest you pay when you refinance your mortgage.

In addition to your mortgage interest, if you’ve taken out a home equity loan on a first or
second home, the interest on that loan may also be deductible. The combined value of your mortgage and your home equity loan must not exceed $750,000. In addition, the home equity loan must be secured by your home and cannot be used for personal expenses, such as paying off credit card debts or car payments.

2. Property Taxes

Your local property taxes, if you live in a state that assesses them, are deductible up to $10,000. If you pay these taxes through an escrow account, the amount you’ve paid in property taxes should be included in the Form 1098 from your lender. If you pay your property taxes directly to the municipality you live in, keep a copy of your property tax statement for your records. If you’ve purchased your home in the past year, check the settlement statement from your closing to make sure you’ve captured all property taxes paid for the year.

3. Mortgage or Home Equity Points

Have you bought a home, refinanced, or taken out a home equity line of credit within the year? If so, you may have paid points to the lender in order to get a lower rate on your loan. These points are usually deductible and should appear on the 1098 statement you receive from your lender along with the interest you’ve paid on your loan.

4. Energy-Efficient Incentives

If you’ve installed solar panels or a solar water heater in the past year, you are likely eligible for a federal tax credit equal to 30 percent of the cost of the system. Some states also offer tax credits for energy-efficient home improvements — check out the Database of State Incentives for Renewables & Efficiency to learn more.

5. Home Office Expenses

Do you have a home office or run a business out of your home? If so, you can deduct a portion of expenses like mortgage interest, property tax, utilities, and home repairs from your taxes. However, you can only deduct these expenses if you are self-employed. Also, your business must meet some strict guidelines to qualify for home office deductions:

  • Your home office must be a place where you regularly conduct business.
  • Your office must be located in a defined area of your home. “The end of the dining room table” does not count as an office for tax purposes.
  • The space must be used exclusively for business; it cannot double as your guest room or home gym.

The IRS lets you choose between two means of calculating your expenses: the “simplified option” and the “regular method.” With the simplified option, you’ll receive a deduction of $5 per square foot of office space, up to 300 square feet. With the regular method, your deduction will be based on the percentage of your home used for office space. You’ll need to total expenses like mortgage interest, utility expenses, home insurance, maintenance, or repair costs and depreciation, then multiply the sum by the percentage of your home that your office occupies.

For more information, see IRS Publication 587, Business Use of Your Home.

A version of this article appeared in our partner magazine, The Essential Tax Guide: 2023 Edition.

Conversation

All comments are subject to our Community Guidelines. Woman's World does not endorse the opinions and views shared by our readers in our comment sections. Our comments section is a place where readers can engage in healthy, productive, lively, and respectful discussions. Offensive language, hate speech, personal attacks, and/or defamatory statements are not permitted. Advertising or spam is also prohibited.

Use left and right arrow keys to navigate between menu items. Use right arrow key to move into submenus. Use escape to exit the menu. Use up and down arrow keys to explore. Use left arrow key to move back to the parent list.