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).
If you’re close to the limit, you can adjust your cost basis by calculating the costs of home improvements. “Keep records of them,” Herron advised. “These improvements — think remodels — increase the basis of your home.”
5. Other home sale costs
If you do have to pay taxes on some of your home sale profits, expenses used for selling your home — such as legal fees, advertising expenses, and real estate agent commissions — can reduce how much is taxable. These costs are subtracted from your home’s sale price, which reduces your capital gains tax.
6. Home office expenses
Whether you’re a renter or homeowner, your home office may be tax-deductible — as long as you’re self-employed. You don’t even have to itemize to deduct expenses like mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
If you work for someone else as an employee, you can’t claim your home office as a deduction. But the home office “could be deductible for state purposes,” Herron said. Also, “you could approach your employer and see if they will reimburse you for some of your home-related expenditures.”
7. Energy efficiency improvements
The 2022 Inflation Reduction Act “beefed up a lot of credits you could potentially get if you do energy-efficient improvements and/or add solar to the house,” Herron said. You can check the federal government’s Clean Energy for All website for information and updates. If you plan to make energy-efficient improvements to your home, save your receipts and any documents related to the work so you can claim the credits at tax time. You can claim some of the benefits for tax years 2022, 2023 and beyond:
For tax year 2022: Homeowners can claim a federal tax credit for 10% of the cost of insulation materials and other energy-efficient improvements, such as energy-saving windows and doors. There’s also a $300 credit for purchasing efficient heating and cooling equipment.
For tax year 2023: Households can claim up to 30% of the costs for certain energy-efficiency improvements, up to $1,200 each year, plus a $150 credit for getting a home energy audit. You may also get a tax credit for 30% of the costs of buying and installing a heat pump, up to $2,000. States will also launch rebate programs for energy-efficient heat pumps, electric appliances and home retrofits.
Kim Porter is a freelance writer and editor.