Tax Deductions


Deductible Homeowners Expenses
One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from your federal income tax.* To do so, youll need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules.

Home Mortgage Interest
For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home equity loan. Additionally

  • The mortgage loan must be secured by your main home or a second home
  • Only interest paid for that tax year can be deducted

The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.

Points (aka loan origination fees, loan discount, or discount points) are generally treated as pre-paid interest and, as such, the full amount can be deducted in the year paid on a purchase transaction. On a refinance, points must be deducted over the term of the loan.

Real Estate Taxes
State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the propertys assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be for your special privilege but for the benefit of the general welfare.

Restrictions on Itemized Deductions
The amount of itemized deductions you can take are restricted by your adjustable gross income.

Non-deductible items
Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include:

  • Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
  • Insurance
  • Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
  • Utilities
  • Domestic help
  • Depreciation

*The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Please consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations.

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