Possible Income Tax Deductions for Homeowners

Tax day is quickly approaching. If you might owe money, or if you’re just looking for every deduction possible, here are a few that may benefit homeowners. This information is provided for general purposes only and is not intended as tax advice.

Standard Deduction vs. Itemized Deduction

Before you get too excited about these possible deductions, you should know not everyone qualifies for them. That’s especially true for tax filers who take the standard deduction.

The standard deduction is a tax break of sorts. It’s the amount the government allows tax filers to use to lower the amount of their taxable income. Deductions help you pay fewer taxes.

Most people use the standard deduction, because it requires less work and documentation than itemizing. However, it’s not for everyone. If you think you have more than the standard deduction, and you have the documentation to prove, it doesn’t hurt to see if itemizing will get you a bigger deduction.

For tax year 2023, the standard deduction is:

• $13,850 for filing single
• $20,800 for heads of household
• $27,700 for married filing jointly

If you qualify for any of the deductions below, you will have to itemize your deductions, and your itemized deductions have to be more than the standard deduction to use them on your tax return.

Mortgage and Home Equity Loan Interest

The interest you paid on your mortgage and/or home equity loan in 2023 can be an itemized deduction on your tax return. However, you can only claim the home equity interest if you used the loan to pay for home improvements. Mortgage interest is reported by your mortgage company on a form 1098. Home Equity interest is reported by the lender from whom you borrowed that money.

Property Taxes

Depending on where you live and how much property you have, this could be a valuable deduction. The IRS lets you deduct up to $10,000 total for all properties you own. The allowable amount for married filing separately is $5,000.

Mortgage Insurance

Private Mortgage Insurance protects the lender in the event mortgage borrowers can’t make their payments. Not everyone has PMI on their mortgage. If you do, it’s deductible on itemized returns.

Home Improvements

This deduction is a bit misleading as not all improvements quality. They must be “necessary” improvements, which to the IRS, generally means impacting the entire home and not just one room. IRS guidelines are vague, so proceed with caution on this potential deduction:

• The improvement substantially adds value to your home.
• The improvement prolongs the useful life of the property.
• The improvement is permanent.

Discount Points

Depending on the type of mortgage you have, you may have had the option to purchase discount points, which lower the interest rate on your loan. Points are deductible in certain situations. Loan origination points are not tax deductible because they don’t affect the interest rate of your loan.

As with all things related to income tax, it’s best to consult with a tax advisor or IRS guidelines before taking any deductions. First Bank is not a tax advisor.