Owning a home is not cheap. Although the housing market has cooled lately, home prices rose by 17% in 2021 and 10% in 2022, outpacing income gains, according to CNN, and rising mortgage rates now make the effective cost of home purchases even greater.
All those expenses come with a bright side, however -- tax credits and deductions for your home that can lead to a big tax refund. For homeowners, learning as much as you can about your potential tax benefits can help you maximize your tax refund when you file your income tax return.
Most homeowners with mortgages know they can deduct payments toward their loan interest, but many tax deductions and tax credits involved in owning a house are less obvious. Learn about all the possible tax breaks for homeowners to get the biggest refund possible on your 2022 taxes.
For more on taxes, learn about the new income brackets and standard deduction for 2023.
Note: The 2022 tax forms haven't been completed, so our links currently point to draftPDF versions of 2022 forms from the official IRS site. You can't file your income taxes with these forms -- official tax forms for 2022 will be available in lateJanuary 2023.
How do homeowner tax breaks work?
Most income tax breaks for homeowners are tax deductions, which are reductions in your taxable income. The less of your income that is taxed, the less money you pay in taxes.
When you file your tax return, you must decide whether to take the standard deduction -- $12,950 for single tax filers, $25,900 for joint filers or $19,400 for heads of household or married filing separately -- or itemize deductions, such as gifts to charity and state taxes.
To take advantage of homeowner tax deductions, you'll need to itemize your deductions using Form 1040 Schedule A. Your decision to itemize will depend on whether your itemized deductions are greater than your standard deduction. All of the best tax software can quickly help you decide whether to itemize or not (as well as help you fill out all of the tax forms mentioned in this article).
Tax credits for homeowners don't require you to itemize. They directly reduce the amount of taxes you owe, and you can usually get those credits whether or not you itemize deductions.
Mortgage interest is the biggest tax break for homeowners
Mortgage interest -- or the amount of interest you pay on your home loan yearly -- is one of the most common tax deductions for homeowners. It's also often the most lucrative, particularly for new homeowners whose payments generally go more toward loan interest during the first years of a mortgage.
Homeowners filing taxes jointly can deduct all payments for mortgage interest on loans up to $1 million, or loans up to $750,000 if made after Dec. 15, 2017. Single filers get half those amounts -- $500,000 or $375,000, respectively.
To deduct your mortgage interest, you'll need to fill out IRS Form 1098, which you should receive from your lender in early 2023. You can then enter the amount from Line 1 on that Form 1098 into Line 8 of 1040 Schedule A.
You can deduct mortgage points from your taxes, too
You can buymortgage points, also called "discount points," when buying a house to decrease the interest on the mortgage. Each 1% of the mortgage amount that home buyers pay on top of their down payment generally reduces their interest rate by 0.25%, though the exact amount will depend on the lender and the loan.
Discount points can save you big money on a 30-year mortgage by lowering the total interest you'll have to pay across decades, but they can also save you money on your taxes when you buy them. The IRS considers mortgage points to be prepaid interest, so you can add the amount paid for points to your total mortgage interest that's entered on Line 8 of 1040 Schedule A.
A mortgage-interest tax credit for new homeowners can be big money
Homeowners who have received a Mortgage Credit Certificate from a state or local government -- usually acquired via a mortgage lender -- can get a percentage of their mortgage interest payments back as a tax credit. Mortgage certificate credit rates vary based on states and go as low as 10% in Virginia to as high as 30% in Florida, per Bankrate.
For example, if you paid $12,000 in yearly mortgage interest in Florida with an MCC, you'd get a $3,600 tax credit. That money is nonrefundable, however -- it can only be used against taxes you owe. If you don't owe federal taxes, it won't give you money back.
This homeowner tax tip is most effective if you are a first-time homeowner, which is generously defined as not living in a home that you've owned for the past three years. If you're buying your first home, be sure to ask your lender or mortgage broker to see if you qualify for an MCC.
To file for your mortgage-interest tax credit, use IRS Form 8396. Remember, you don't need to itemize deductions to claim tax credits.
You can deduct property taxes, but only to a certain amount
Local and state real estate taxes, more commonly called property taxes, can be deducted from your taxes, but at a far lower amount than before 2017.
Thanks to the Tax Cuts and Jobs Act of 2017, you can only deduct up to $10,000 combined from your property taxes and state and local income taxes. Before 2017, your entire amount of property taxes was deductible.
To claim your property tax deduction, you'll need to track your annual property tax payments. Your real estate taxes might also be listed in Box 10 of Form 1098 from your mortgage lender. Enter your total amount of real estate taxes paid for the year in Line 5b of 1040 Schedule A.
Home office expenses are only deductible if you're self employed
Homeowners who use any part of their house, apartment or condo "exclusively and regularly" for their own business or side gig can claim home business expenses using IRS Form 8829. These deductions are available to renters too.
The easiest way to claim a home-office tax break is by using the standard home-office deduction, which is based on $5 per square foot used for business up to 300 square feet. The "regular method" for deducting a home office involves calculating the percentage of your home that is used for business. Both methods use Form 8829 for reporting.
Home-office deductions aren't available to remote employees of companies.
Installing an electric car charging station can get you 30% back
Electric vehicle charging stations can give you money back on your tax bill. If you install any alternative energy charging station in your home, you get a maximum credit of 30% of the cost or $1,000 (whichever is smaller). File IRS Form 8911 to claim your tax credit for the money spent on clean energy installation.
Go green to get energy-efficiency tax credits
If you made energy-efficient improvements to your home in 2022, you can likely get back some of that money as tax credits, but it gets a little complicated. There are two types of tax credits for home energy improvements -- the residential clean energy credit and the energy efficient home improvement credit.
The residential clean energy credit can give you 30% back on any money you spent installing solar electricity, solar water heating, wind energy, geothermal heat pumps, biomass fuel systems or fuel cell property. The only limit is for fuel cell property -- $500 for each half a kilowatt of capacity.
The energy-efficient home improvement credit, also known as the nonbusiness energy property credit, is then split into two categories -- "residential energy property costs" and "qualified energy efficiency improvements."
In the first case of energy property costs, you'll get a flat tax credit of $50 to $300 for installing Energy Star-certified items like heat pumps, water heaters or furnaces. In the second case of qualified improvements, you can get a 10% tax credit for the cost of improvements like adding insulation, fixing a roof or replacing windows.
The energy efficient home improvement credit has a $500 lifetime limit for all improvements made after 2005. Starting in 2023, the Inflation Reduction Act will replace the $500 lifetime limit with a $1,200 annual limit for the tax credit.
To claim tax credits for energy-efficient home improvements in 2022, you'll need to document your costs on IRS Form 5695.
Interest from home equity loans can also be deducted
Any interest from a home equity loan or second mortgage can be deducted from your taxes just like regular mortgage interest, with the important limit of maximum loan totals of $1 million or $750,000 (for joint filers) if you purchased your home after Dec. 15, 2017.
It's also very important to note that the 2017 tax law limits deductions for home equity loan interest to money that is used to "buy, build or substantially improve" homes. If you borrowed money to pay for a new car or tuxedo, you're out of luck.
If you did pay interest on a home equity loan that was used directly on your residence, you can claim the deduction on the same line as mortgage interest and mortgage points: Line 8 on Form 1040 Schedule A.
When you're selling your home, include all your improvements in the cost basis
Any income you earn from selling a home is taxable as a capital gain (with a notable exclusion -- see below). Your gain is calculated by the difference between your sale price for the home and your "cost basis." That cost basis includes what you paid for the home, the price of improvements that you may have made as well as any property loss from depreciation or casualty.
If you've put in a new roof, replaced a furnace, refinished floors or even landscaped the garden, be sure to include those costs to increase your adjusted basis and reduce the amount of your capital gains on the sale.
If you sold your primary residence, you get a great tax deduction
When you sell a home, you'll need to pay taxes on the amount of money you earned on the sale as capital gains. However, if you live in the home for two of the previous five years before selling, you get a very large tax exclusion -- $500,000 for married joint filers, or $250,000 for single or separate filers.
All Americans receive this tax exclusion regardless of their age and regardless of how many times they've benefited from it before. Note that the residence requirements apply whether you own the home or not. If you rent a house for two years and then buy it, you're free to sell with the standard residence exclusion at any time.
You'll likely receive the tax information about the sale of your home in a 1099-S form, and you'll report your ultimate gain -- with that $500,000/$250,000 exclusion -- on IRS Form 8949. If you don't receive a 1099-S form and your profit on the house is less than the exclusion, you don't need to report the sale on your taxes at all.
Home improvements for medical needs can be deducted
Medical expenses can be a major tax deduction, but only if they go over 7.5% of your adjusted gross income, which is essentially your taxable income. Any home improvements -- safety bars, accessibility ramps, wider doorways, railings and lifts, for example -- related to medical conditions can be included in your tax deductions for medical expenses.
Keep all your receipts and invoices and include the total cost of the improvements or additions with all of your additional medical and dental expenses on Line 1 of 1040 Schedule A.
Which home expenses are not tax deductible?
Despite all of the tax breaks available for homeowners, there are some home-related expenses that can't be deducted from your income.
- Your down payment for a mortgage
- Any mortgage payments toward the loan principal
- Utility costs like gas, electricity and water
- Fire or homeowner's insurance
- House cleaning or lawn maintenance
- Any depreciation of your home's value
Everyone's tax situation is unique. Before making major tax decisions, we recommend consulting a tax professional who can help you with both federal and state tax laws.
For more on income taxes, learn how student loan debt forgiveness could affect your tax bill.
FAQs
What is the standard deduction for 2023? ›
The standard deduction is increasing by $900 to $13,850 for singles in 2023 and by $1,800 to $27,700 for couples.
What types of home improvements are tax-deductible? ›In general, home improvements aren't tax-deductible, but there are three main exceptions: capital improvements, energy-efficient improvements, and improvements related to medical care.
What new home purchase expenses are tax-deductible? ›The only costs the homeowner can deduct are: state and local real estate taxes, subject to the $10,000 limit. home mortgage interest, within the allowed limits. mortgage insurance premiums.
How much tax credit do you get for buying a house? ›The tax credit is equal to 10% of your home's purchase price and may not exceed $15,000 in 2021 inflation-adjusted dollars.
What is the maximum charitable deduction for 2023? ›Standard Deductions for 2022 and 2023 Taxes
19 State and local tax deductions are capped at $10,000 ($5,000 if married and filing separately) in both 2022 and 2023.
For the 2023 tax year (i.e. the tax year commencing on 1 March 2022 and ending on 28 February 2023), the following rebates apply: Primary rebate: ZAR 16,425 for all natural persons. Secondary rebate: ZAR 9,000 if the taxpayer is 65 years of age or over.
How do I claim home improvements on my taxes? ›Home improvements on a personal residence are generally not tax deductible for federal income taxes. However, installing energy efficient equipment may qualify you for a tax credit, and renovations for medical purposes may qualify as tax deductible.
Is a new driveway tax deductible? ›If you get a new driveway installed at a home that is used purely as your primary residence, you won't be able to deduct the cost on your taxes for that same tax year. However, that doesn't mean you won't benefit from the investment. By installing a new driveway, you increase the “tax basis” of your property.
Is replacing HVAC system tax deductible? ›Private residential home improvements are considered nondeductible personal expenses by the IRS – meaning your HVAC replacement isn't tax deductible. However, new AC installation is considered a home improvement that increases your home's basis.
Do you get money back on taxes for buying a house? ›Key Takeaways. The Mortgage Credit Certificate (MCC) program allows qualified homebuyers to claim a tax credit on their federal income tax returns equal to 10% to 50% of the interest they paid. The MCC program is run by individual counties in California. Credits of about 20% are common.
Is there a tax break for buying a house in 2022? ›
The maximum tax credit is $1,500 for a qualifying home. You can split the amount between everyone who is eligible to claim the credit for the same qualifying home.
What home improvements are tax-deductible 2022? ›- Expanding hallways and doorways.
- Lowering kitchen cabinets.
- Making entrances and exits accessible.
- Installing handrails.
- Adding lifts from one floor to another.
- Installing support bars in a bathroom.
Generally, deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes. Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: Abstract fees.
How do I qualify for first time homebuyer tax credit IRS? ›Tax Credit in General
A first- time homebuyer is an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence for which the credit is being claimed.
You can't get Housing Benefit if you own your home, but you may qualify for other financial help.
How much is the EITC for 2023? ›The earned income tax credit, also known as the EITC or EIC, is a refundable tax credit for low- and moderate-income workers. For the 2022 tax year, the earned income credit ranges from $560 to $6,935 depending on tax-filing status, income and number of children. In 2023, the credit will be worth $600 to $7,430.
What deductions can I claim without receipts? ›- Self-employment taxes. ...
- Home office expenses. ...
- Self-employed health insurance premiums. ...
- Self-employed retirement plan contributions. ...
- Vehicle expenses. ...
- Cell phone expenses.
The IRS has increased the taxable income thresholds for the 0%, 15% and 20% long-term capital gains brackets for 2023. With higher standard deductions and taxable income limits for capital gains, it's more likely you'll fall into the 0% bracket, experts say.
What is the assessment year for 2023? ›For the Assessment Year 2023-24, a partnership firm (including LLP) is taxable at 30%. Add: (a) Surcharge : The amount of income-tax shall be increased by a surcharge at the rate of 12% of such tax, where total income exceeds one crore rupees.
How much do you get back for a child on taxes 2023? ›The child tax credit (CTC)
The CTC is worth a maximum of $2,000 per qualifying child. Up to $1,400 is refundable.
What will the child tax credit be in 2023? ›
Under the American Rescue Plan passed by Congress in March 2021, the child tax credit was increased to $3,600 for children age 5 and under and $3,000 for those ages 6-17.
Is painting your house tax-deductible? ›By itself, the cost of painting the exterior of a building is generally a currently deductible repair expense because merely painting isn't an improvement under the capitalization rules.
Is a kitchen remodel tax-deductible? ›Yes, kitchen upgrades are generally considered to be capital improvements under the IRS's guidelines. In fact, new kitchens, new kitchen appliances and new flooring can all qualify.
Are foundation repairs tax-deductible? ›Foundation repair costs that affect your entire house are deductible depending on the size of the office space you use. For instance, if you use 40% of your home as an office, you can deduct 40% of the total foundation repair cost.
Is landscaping tax deductible? ›As long as you meet the qualification, the IRS allows you to put landscaping as a tax-deductible business. Bear in mind that your name needs to figure as the business owner, as well as the owner of the property where the income goes to.
Are new floors tax deductible? ›Floors fall under the category of capital improvements to your home. Capital improvements get to be added to the original price you paid for your home, which is then subtracted from the sale amount in order to determine how much profit you made.
Is there an energy tax credit for 2023? ›Beginning January 1, 2023, the amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures during the year, and (3) home energy audits ...
What AC units qualify for tax credit? ›Central Air Conditioning
You can qualify for tax credit up to $300. Split systems must have a minimum of 16 SEER and 13 EER whereas packaged systems must meet or exceed 14 SEER and 12 EER.
How much can I claim for a non-solar water heater on my tax return? You are eligible for a $300 home improvement tax credit if you replace your non-solar water heater with a more energy-efficient model.
Can you write off home improvements? ›When you make a home improvement, such as installing central air conditioning or replacing the roof, you can't deduct the cost in the year you spend the money. But, if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house.
What can you write off as a homeowner? ›
- Mortgage Interest. If you have a mortgage on your home, you can take advantage of the mortgage interest deduction. ...
- Home Equity Loan Interest. ...
- Discount Points. ...
- Property Taxes. ...
- Necessary Home Improvements. ...
- Home Office Expenses. ...
- Mortgage Insurance. ...
- Capital Gains.
Capture end-of-year tax savings.
So long as you close before December 31st, you'll have a lot more that you can write off on your taxes during the same calendar year. Some of the most common home-related tax deductions include: Mortgage Interest. Discount Points.
Home Renovation Tax Credit [Active]
Eligible expenses include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits. Additionally, the $2,100 is split between the two years, meaning a maximum of $1,155 for 2021 and $945 for 2022.
Renovation of a home is not generally an expense that can be deducted from your federal taxes, but there are a number of ways that you can use home renovations and improvements to minimize your taxes.
Which home improvements add the most value? ›- Remodel the kitchen. Updates to the kitchen pay off. ...
- Upgrade the appliances. ...
- Boost the bathrooms. ...
- Remodel the attic or basement. ...
- Get decked out. ...
- Boost curb appeal. ...
- Improve energy efficiency.
Products That Qualify
Central air conditioning – $300 for air conditioners recognized as ENERGY STAR Most Efficient. Air-source heat pumps – $300 for ENERGY STAR certified heat pumps. Natural gas, propane, or oil furnace –$150 for ENERGY STAR certified gas furnaces (except those certified for U.S.
For most people, the biggest tax break from owning a home comes from deducting mortgage interest. For tax years prior to 2018, you can deduct interest on up to $1 million of debt used to buy, build or improve your home.
How much mortgage interest can I deduct on my taxes? ›Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million. Now the loan limit is $750,000. That means for the 2022 tax year, married couples filing jointly, single filers and heads of households could deduct the interest on mortgages up to $750,000.
Are appraisal fees tax deductible? ›Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees, or notary fees aren't interest and can't be deducted. Points paid by the seller of a home can't be deducted as interest on the seller's return, but they're a selling expense that will reduce the amount of gain realized.
Do first time home buyers get a bigger tax refund? ›Text for the bill says that first-time homebuyers of a principal residence in the U.S. could claim a tax credit equal to 10% of the purchase price of the tax residence during that tax year. However, this tax credit cannot exceed $15,000.
Who is not eligible for the recovery rebate credit? ›
No credit is allowed when AGI is at least the following amount: $160,000 if married and filing a joint return or if filing as a qualifying widow or widower. $120,000 if filing as head of household or. $80,000 for all others.
Can I get my mortgage paid on benefits? ›If you're on certain benefits and struggling to pay your mortgage, you might be able to get help from the government to pay the interest on your mortgage. This is called Support for Mortgage Interest (SMI).
What benefits can I claim on a low income? ›- Universal Credit. Find out if you're eligible for Universal Credit, make an application and get advice on solving any problems you have.
- Housing Benefit. ...
- Working and child tax credits. ...
- Jobseeker's Allowance (JSA) ...
- Pension Credit. ...
- Income Support.
You can rent to a family member on housing benefit or universal credit as long as you don't live with them and you have a formal agreement. Although not a pleasant topic, it's wise to discuss with your family member what would happen to the property if you died as this could mean they have to move out.
What is the standard deduction for 2023 over 65? ›2023 Standard Deduction
Taxpayers who are at least 65 years old or blind can claim an additional standard deduction of $1,500 is allowed for 2023 ($1,850 if you're claiming the single or head of household filing status).
Brackets are adjusted each year for inflation. There are seven tax brackets for most ordinary income for the 2023 tax year: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.
What is the difference between 2022 and 2023 standard deduction? ›For married couples filing jointly, the new standard deduction for 2023 will be $27,700. This is a jump of $1,800 from the 2022 standard deduction. The 2023 standard deduction for single taxpayers and married filing separately will be $13,850. This is a jump of $900 from the 2022 standard deduction.
Are tax rates changing in 2023? ›When it comes to federal income tax rates and brackets, the tax rates themselves aren't changing from 2022 to 2023. The same seven tax rates in effect for the 2022 tax year – 10%, 12%, 22%, 24%, 32%, 35% and 37% – still apply for 2023.
What taxes do you stop paying at 65? ›Single taxpayers over 65 do not need to file unless their non-social security income is over $14,250. Married taxpayers over age 65 do note need to file unless their non-social security income is over $27,800. Is Social Security considered gross income?
What tax breaks do you get when you turn 65? ›Extra Standard Deduction for Seniors Over 65
For example, a single 64-year-old taxpayer can claim a standard deduction of $12,950 on his or her 2022 tax return (it will be $13,850 for 2023 returns). But a single 65-year-old taxpayer will get a $14,700 standard deduction in 2022 ($15,700 in 2023).
What will be the final day of the 2023 2024 year for income tax? ›
All income over the threshold is taxed at the income tax rates applicable to your level of income under PAYE (Pay as you Earn). The 2023/2024 tax year starts on the 6th April 2023 and stops on the 5th April 2024.
What tax year is due in January 2023? ›This means that the deadline for filing your 2021-22 taxes is 31 January 2023.
What deductions can I claim in addition to standard deduction? ›Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses. You may also include gifts to charity and part of the amount you paid for medical and dental expenses.
At what age is Social Security no longer taxed? ›However once you are at full retirement age, which is between 65 and 67 years old depending on your year of birth, your Social Security payments can no longer be withheld if, when combined with your other forms of income, they exceed the maximum threshold.
Do seniors get a higher standard deduction? ›Increased Standard Deduction
When you're over 65, the standard deduction increases. The specific amount depends on your filing status and changes each year. For the 2021 tax year, seniors get a tax deduction of $14,250 (this increases in 2022 to $14,700).
Yes. The rules of the Internal Revenue Service dictate that many who receive Social Security benefits will have to pay an income tax on that money.
Is Section 179 going away in 2023? ›The Tax Cuts and Jobs Act of 2017 made significant changes to both Section 179 and bonus depreciation. These changes continue to be in effect for 2023 and when used together may allow businesses to deduct up to 100% of capital purchases.