Homeownership Tax Breaks

As workers around the country begin to receive their information for filing taxes, homeowners may be wondering what perks they have for owning their home. With the passing of the Tax Cuts and Jobs Act way back in 2018, many saw significant changes added to the way we file our taxes.

Now, while there may be more types of deductions, the Tax Cuts and Job Acts nearly doubled the amount of a standard deduction- and the numbers seem to increase each year. Standard deduction amounts increased for the 2021 tax year. For individuals, the deduction is now $12,550 (up $150 from 2020), and it’s $25,100 for married couples filing jointly (up $300 from 2020). There are still a lot of options for tax breaks, though. 

Mortgage Interest

If your mortgage loan went into effect before the passing of the Tax Cuts and Job Acts (officially by Dec. 15, 2017), you are able to deduct interest on loans up to $1,000,000. If you purchased your home after that date, you are only able to deduct interest on the first $750,000.

Private Mortgage Insurance

Depending on your mortgage lender, if you made a down payment of less than 20%, you likely have private mortgage insurance. Thanks to the Mortgage Insurance Tax Deduction Act of 2021, you may deduct the interest paid on private mortgage insurance. Because this is an itemized deduction, it counts towards that $25,100 number set for married couples under 65. And it can add up quickly. For example, if you make $100,000 and put down 5% on a $200,000 house, you’ll cut your taxable income by $1,500.

Energy Efficiency Upgrades 

Until 2023, homeowners may be eligible for two remaining tax credits under Residential Energy Efficient Property clauses. Most expired in 2016, but for two more years homeowners might be eligible for a credit for solar electric panels as well as solar water heaters. the percentage of the credit varies based on the installation date. For example, for equipment installed after Dec. 31, 2019 and before Jan. 1, 2023, 26% of the expenditure is eligible for the credit. Note that figure will drop to 22% for installation after Dec. 31, 2022 and Jan. 1, 2024. As of now, the credit ends entirely after 2024.

Be sure to visit Realtor.com to read up on several more potential tax breaks and credits this tax season.

In order to know whether it’s worth filing your deductions this year, and in order to maximize your return, it is always recommended to speak with a tax professional.