Tax Deductions for Homeowners - NerdWallet (2024)

Tax deductions for homeowners can add up to thousands of dollars, but claiming them is worth the trouble only if all your itemized deductions exceed the IRS standard deduction.

The standard deduction is a specific dollar figure you can subtract from your adjusted gross income on your federal taxes. The deduction, set each year by the IRS, varies based on tax-filing status and is typically allowed without question.

The standard deduction for the 2023 tax year (for taxes due in April 2024) is:

Itemized deductions are for certain expenses permitted by the IRS to reduce your taxable income. If you itemize, you’ll need to keep careful records in case of an IRS audit.

If the sum of the deductions you qualify for is more than the standard deduction, then itemize to reduce your tax bill. Here are the tax deductions for homeowners to include in the calculation.

Mortgage interest

This is usually the biggest tax deduction for homeowners who itemize. A portion of every mortgage payment goes toward interest on the loan. You can deduct the interest you paid up to a limit, which depends on when you took out the mortgage.

Your mortgage servicer will send a statement each year on Form 1098 showing how much interest you paid.

Home equity loan interest

You can deduct interest you’ve paid on home equity loans and home equity lines of credit but only if you spent the borrowed money on home improvements. Before the 2017 tax reform law went into effect in 2018, you could deduct the interest even if you used the money for other purposes, such as college tuition.

Your home equity loan or HELOC debt counts toward the total mortgage debt limit for deducting interest. So if your first mortgage is over the deductible limit, then the home equity loan interest won't be deductible.

Discount points

Discount points are the fees you can pay when your mortgage closes to lower your interest rate. One discount point costs 1% of the mortgage amount.

Discount points count as mortgage interest and are deductible, but in most situations, you can't deduct the full amount in the year they were paid. Instead, you deduct a portion of them each year over the life of the loan. There are exceptions, however; see IRS Publication 936 for details.

The term "points" can be confusing because some lenders call their fees "loan origination points." Those points go toward paying the lenders' costs for providing the loan, and they are not tax deductible. Only discount points paid to reduce the interest rate can be deducted.

Property taxes

You can get a tax break for paying property taxes, but there's a limit. You may deduct up to $10,000 ($5,000 if married and filing separately) of property taxes in combination with state and local income taxes or sales taxes.

Home office expenses

You may deduct home office expenses if you're self-employed and use part of your home regularly and exclusively for your business. Employees who work from home cannot claim a home office deduction.

You can use the IRS "simplified method" or your actual expenses to figure out the deduction amount for home office expenses. The IRS website provides details about determining whether your home office qualifies for a tax deduction and has worksheets for calculating the deduction amount.

Medically necessary home improvements

When figuring out your medical expense deductions, you can include the cost of installing health care equipment or other medically necessary home improvements that benefit you, your spouse or a dependent.

Permanent improvements that increase your home's value are only partly deductible. The deductible cost is reduced by the amount of the property value increase.

Many improvements to make a home more accessible, such as constructing entrance ramps, widening doorways or installing railings and support bars, usually don't increase the value of a home and can be fully deducted.

Homeowner costs that aren't tax-deductible

Here's a roundup of expenses homeowners can't deduct:

Get tax help for complex issues

Doing your own taxes may make sense if you have a simple return, but consider getting help from a tax preparer if your situation is complex. Taxes can get more complicated if you're going through a major life change, such as retiring or getting a divorce, own a small business or have complicated investments.