Your guide to a better future
Learn how your home can save you big money on your income taxes.
Peter Butler
Writer
Peter is a writer and editor for the CNET How-To team. He has been covering technology, software, finance, sports and video games since working for @Home Network and Excite in the 1990s. Peter managed reviews and listings for Download.com during the 2000s, and is passionate about software and no-nonsense advice for creators, consumers and investors.
Owning a home might be the American dream, but it can have drawbacks -- such as major maintenance costs -- as well as bonuses. On the plus side, being a homeowner gives you access to a number of
tax breaks, which can add up to big money in your
tax refund.
For homeowners, learning about your tax benefits now can help you review and adjust your tax situation for when you file your income tax returns in early 2023.
While most homeowners with
mortgages know they can deduct payments toward their loan interest, 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, or review our
end-of-year checklist for optimizing your taxes.
Note: The 2022 tax forms haven't been completed, so our links currently point to
draft 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
Jan. 2023. (Most online tax software companies launch their new tax software in December.)
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 -- 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 buy
mortgage 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.
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.
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.
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.
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.
You can get 30% of your solar installation costs back as a tax credit.
If you've 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.
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.
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.
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.
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.
Despite all of the tax breaks available for homeowners, there are some home-related expenses that aren't tax deductible.
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 impact your tax bill.
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