One of the perks of being a homeowner is getting to use your home for tax deductions. Tax deductions reduce how much you pay in taxes by lowering your taxable income.
When filing your annual taxes, you can use standard or itemized deductions. Standard deductions are a set amount deducted from your adjusted gross income based on factors like your marital status, filing status, and age. For the 2021 tax year, it ranges from $12,550 to $25,100.
Itemized deductions allow you to manually add each item you’d like to deduct from your adjusted gross income.
If you use itemized instead of claiming the standard deduction, you can take advantage of the following homeowner deductions:
Depending on the type of mortgage you have and the way you file your taxes, you may be able to deduct interest payment on your mortgage, home equity loans, and lines of credit (if they were used to buy, build, or improve your home). The amount may vary, but for the 2021 tax year you can deduct up to $750,000 in mortgage interest.
Real estate taxes
You can deduct the real estate taxes you paid for your primary residence, co-apartment, vacation home, or land.
The year you purchase mortgage points, the full amount you paid can be an itemized deduction. If you can’t deduct the points in the year you bought them, you may still be able to deduct them over the life of the loan.
For the 2020 tax year, the amount you paid for private mortgage insurance premiums (or mortgage insurance premiums for FHA-baked loans) can be an itemized deduction. However, your loan must have been taken out after January 1, 2007 to qualify.
Renewable energy tax credits are available for both existing and new construction primary and secondary homes. To see a full list of credits, visit energy.gov.
Possible first-time homeowner credit: This isn’t a tax credit, but it’s something to be aware of if you’re considering buying a home for the first time. If coming up with a down payment is keeping you from becoming a home buyer, keep an eye out for the proposed First Down Payment Tax Credit. President Joe Biden’s administration is looking into offering up to $15,000 to qualified buyers at closing. This credit is designed for those who can qualify for a home loan based on their credit score and debt-to-income ratio but could use $15,000 to meet the down-payment qualifications of the loan. If this credit becomes available and you meet the qualifications, you should contact a loan officer to discuss it.
The above list will give you an idea of some of the tax benefits available to homeowners. At Mann Mortgage, we’re home loan experts, not tax pros. If you have any questions about your taxes, be sure to work with a local tax professional.
There are a lot of financial benefits for home ownership. If you’re interested in finding out how your current home or new home can best benefit your financial goals, give us a call. We’ll crunch the numbers together and find the right mortgage program for you.