Welcome to your home tax deduction checklist! For homeowners, this kind of guidance is essential in the wake of all the changes ushered in by the new tax plan, the Tax Cuts and Jobs Act, that are still rolling in.
The biggest change for 2023? The standard deduction jumped a couple of hundred dollars for taxpayers—to $13,850 for individuals, $20,800 for heads of household, and $27,000 for married couples filing jointly. And this higher number means you need to dig into all of your home expenses to see if their total sum tops the standard deduction, depending on your filing status. (If the total doesn’t surpass it, then you’ll just take the standard deduction on your taxes when you file.)
To help, here’s a list of all the tax breaks for homeowners.
Mortgage interest
In the past,you could deduct the interest from up to $1 million in mortgage debt (or $500,000 if you filed singly).
“But for loans taken outfromDec. 15, 2017, onward, only the interest on the first $750,000 of mortgage debtis deductible,” saysWilliam L. Hughes, acertified public accountant in Stuart, FL.
Mortgages are structured so that you start off paying more interest than the principal. For example, in the first year of a $300,000, 30-year loan at a fixed 4% interest rate, you’d be deducting $10,920. (To find out how much you paid—or will pay—in mortgage interest any year, punch your numbers into ouronline mortgage calculator.)
Note that taking this deduction under the new tax law does require itemizing deductions, but it may be worth the hassle,especially for new homeowners.
Mortgage points
If you bought a home and paidpoints, then you can still deduct those from your taxes.
They must be“true,” or discount, points, not origination points. After all, points are essentially mortgage interest that you prepay, so it makes sense that they’d be treated like the rest of your mortgage interest.Each point is 1% of the loan amount, so if you paid2 points on that $300,000 loan, you can deduct $6,000.
Home equity debt interest
Homeowners often take out ahome equity loanorhome equity line of credit in order to tap into some quick cash—for college, weddings, home improvements, or otherwise—using their home as collateral. And up until 2017, homeowners could deduct the interest on home equity debts up to $100,000 for married joint filers.
Now? “Home equity debt interest deductionshave been eliminated,” saysEric Bronnenkant, a certified public accountant and financial planner, and head of tax at Betterment. That is,unlessyou spend the money on one thing only: home improvements.
So if you’re eager to renovate that kitchen, this deduction still stands. But if you have to foot the bill for your daughter’s wedding, the IRS will no longer pitch in,explainsAmy Jucoski, acertified financial planner and national planning manager at Abbot Downing.
And unlike mortgage interest deductions, the new ruleson home equity debt apply toallloans regardless of when they were taken. And to reap the benefit, your total debt—meaning your mortgage plus your home equity loan—can’t be more than the new $750,000 cap.
Property taxes
In the good ol’ days of 2017, your property taxes were fully tax-deductible.
This tax season, there’s a $10,000 cap on the combined amount of your property taxes, state and local income taxes, and (for states without income tax)deductible sales tax.
One bright side for landlords and those with vacation homes: “You can take deductions for all the properties you own, plus add your state income tax,” saysSteven Weil, president of RMS Accounting, in Fort Lauderdale, FL.
Energy-efficient upgrades
According toBishop L. Toups, a taxation attorney in Venice, FL, qualifying solar electric panels and solar water heaters are good for a credit of up to 30% of the cost of the equipment and installation.
And you can also nab an energy-efficient home improvement tax credit of up to $3,200 for improvements made to your home after January 1, 2023. Energy-efficient upgrades include things like exterior windows, doors and skylights, insulation, and the cost of home energy audits.
Home office deduction
The home office tax deduction disappeared for all W-2 employees who have an office elsewhere that theycoulduse if they wanted to. The only people who can continue taking this deduction are those who truly run theirownbusinessfromhome, saysJoshua Hanover, a senior manager at Marks Paneth.
Using the simplified home office deduction, self-employed people can take $5 for every square foot of office space, up to a maximum of 300 square feet. For a 200-square-foot home office, you’re looking at a nice $1,000 deduction. Just don’t try any funny stuff—it has to be a dedicated home office, used only for work. Here’s more on thehome office tax deduction.
