Homeownership comes with a lot of financial responsibility and a never-ending list of home improvement projects.
But for anyone who pays a mortgage, the good news is that you can deduct several home expenses come tax time — especially if you itemize your taxes — or enjoy other tax breaks as a homeowner.
Here are the top tax tips for homeowners.
1. Mortgage interest deduction
While you can no longer deduct the cost of homeowners insurance premiums, you can write off what you paid toward mortgage interest — if you’re eligible and you itemize your deductions.
Start by looking at the date you took out the mortgage and how much you borrowed. If you closed before Dec. 16, 2017, then interest is deductible on up to $1 million in mortgage debt (or up to $500,000 if you’re single or married filing separately). The limit falls to $750,000 ($375,000 for single and separate filers) if you bought the home after this date.
2. Home equity loan interest deduction
If you took out a home equity loan or line of credit in 2022, you might be able to deduct the interest paid during the year. But you can only claim this tax break if you 1) itemize your deductions and 2) used the money to buy, build or substantially improve the home.
“Good examples are HVAC (improvements or replacements), remodels, and new roofs,” said Dan Herron, a CPA/PFS CFP with Elemental Wealth Advisors. If you’re looking to claim the tax break, “do not pay off personal expenditures, like credit card debt,” he adds.
If you’re eligible, the interest is deductible on up to $750,000 of qualified residence loans ($375,000 for a married taxpayer filing separately), which include your original mortgage plus second mortgages such as home equity loans and home equity lines of credit.
3. Deduction cap for property taxes
The state and local tax (SALT) deduction allows you to deduct up to $10,000 paid toward your state and local governments ($5,000 for married couples filing separately). Taxpayers can deduct property taxes and either 1) state and local income taxes or 2) sales taxes each year. To claim the tax break, you’ll need to itemize your deductions.
“Even though you don’t think you will benefit from the SALT deduction, still report the related expenditures,” Herron said. “You may still have some deductibility on the state return.”
4. Tax exclusion for home sale profits
Home prices grew year over year in nearly all metro areas in the third quarter of 2022, making it a good year for home sellers. Even better, those who made a profit on a sale might not have to pay taxes on the earnings. If you lived in your home for at least two out of the five years before selling, then you can exclude up to $500,000 in profits on your income tax return (up to $250,000 if you’re single or filing separately).