Financial Fundamentals Blog

Tax benefits of owning a home

Are you a new homeowner or considering buying your first home? As the 2022 tax deadline – April 18 – approaches, it’s important to know what tax benefits you can take advantage of on your returns so you can maximize your savings.


Owning your own home can provide significant tax benefits. But where do you start? First, it’s important to understand how a tax deduction works. Tax deductions reduce your taxable income by a percentage, which is determined by your tax bracket.  You can choose to take the standard deduction ($12,550 for individuals filing as single taxpayers, or $25,100 for married couples filing jointly) or to itemize your deductions, which involves listing each eligible deduction separately. After adding up the total of your itemized deductions, you’ll multiply that amount by your tax bracket for your total deduction.


Tax benefits of buying a home

If you pay discount points – discount points are a portion of a borrower’s mortgage interest that they elect to pay up front – you can generally deduct the cost of the points paid.

If you’re an active duty member of the armed forces, you may be able to deduct your moving expenses from your taxable income. Please note that this perk is limited to active service people who need to move because of a permanent change of station due to a military order.


Tax benefits of owning a home

There are multiple tax benefits to owning a home:

  • Mortgage interest deduction. Most homeowners can deduct the interest payments they make on their mortgage from their taxable income. Note that there may be limits on how much you can deduct.
  • Real estate taxes. The money you pay in property taxes is deductible from your taxable income. If you pay through a lender escrow account, you’ll find the tax amount on your 1098 form. If you pay your taxes directly to your municipality, use your personal records as proof.
  • Private mortgage insurance (PMI). If you took out a loan that was equal to less than 20% of your home’s value, you may be able to deduct your PMI payments from your taxable income. This deduction depends on your adjusted gross income; if you’re single and your AGI is less than $50,000, you are eligible for the deduction. Note that the Internal Revenue Service considers the following as tax-deductible mortgage insurance: PMI, VA loan funding fee, USDA loan guarantee fee and FHA loan up-front mortgage insurance premiums.
  • Home equity debt. If you’ve taken out a home equity loan or home equity line of credit against your home, the interest payments on these loans can be deducted from your taxable income.
  • Home office expenses. If you use a part of your home exclusively for work purposes, you may be able to deduct related expenses.

Can homeowners take advantage of any tax credits?

Unlike a tax deduction, a tax credit directly lowers your tax bill. For example, if you get a $1,000 tax credit, you will owe $1,000 less on your taxes. You may be eligible for a mortgage credit if you were issued a qualified mortgage credit certificate by a state or local government unit or agency under a qualified MCC program. Depending on where you live, you may be able to claim a credit for a percentage of the cost of buying and installing items that help your home harness renewable energy (i.e. solar panels).


As you explore your options, be sure to keep these topics in mind to help you save money. Please consult a tax professional for additional guidance and information on the most current tax laws.