Homeowner Tax Deductions

Home ownership can feel like a giant milestone in becoming a “grown up”. You finally have that place to call your very own. You get to decorate it exactly the way you want. You can paint the walls white, or green, or black, or pink. You can turn a bedroom into an office or a dining room into a personal spa. It is finally your own personal space.

Yet all that freedom of home ownership comes the “adulting” that corresponds with it. You can no longer call up the landlord when the refrigerator stops working. You have to find a way to fix it or replace it yourself. No more sitting in the well manicured courtyard that was maintained by the apartment complex as part of your rent. You have to get a lawnmower yourself and mow the grass. And if it snows you better believe that no one is going to come by and shovel your driveway for you. It can be expensive and hard work.

Luckily, the Federal Government is here to help make the burden of home ownership a little bit easier. Before you were a homeowner you probably heard of this mystical tax concept of an itemized deduction. You probably wondered why you only got a measly standard deduction ($6,300 for single and $12,600 for married filing jointly in 2016) instead of that larger itemized deduction everyone else seemed to get. Well homeownership is the easiest way to accumulate the deductions that will move you from a standard deducer to an itemized deducer. Here are just a few of the itemized deductions you may be eligible for once you own a home.

Mortgage Interest

There are very few people that are blessed to have the cash to write a check for the entire purchase price of a home. Instead, a homeowner will get a loan from a bank (called a mortgage) and then make payments that include interest to the bank. The interest paid to the bank on your mortgage can be included as an itemized deduction assuming the loan is secured by the home and the loan is limited to $1 million. If your loan exceeds $1million you are still eligible for a partial deduction.

Home Equity Loan

The interest on a home equity loan secured by your first or second home up to $100,000 may also qualify as an itemized deduction. You can also structure your debt on the purchase of your home so that part of the loan ($1million) is a mortgage and the other part of the purchase ($100,000) is a home equity loan, essentially increasing the amount of the mortgage eligible for the mortgage interest deduction up to $1.1million. More good news is that as long as the loan is secured by the house the proceeds from the loan can be used on anything. For example, if you take out a home equity loan and use the proceeds to buy a car, the interest on the home equity loan is still tax deductible.

Mortgage Insurance Premiums

Depending on how you finance your home purchase, how much money you can put down, and other various factors your home lender may require you to pay mortgage insurance premiums. Some of you may qualify to deduct these as an itemized deduction as well. The deduction is limited if your adjusted gross income is greater than $100,000 and completely phased out if your adjusted gross income is greater than $109,000 but make sure you make your tax advisor aware that you are paying mortgage insurance premiums just in case you qualify.


You can deduct points paid on a loan to purchase or build your principal residence. What exactly is a point? Don’t look for the term “point” on your HUD-1 (that legal paper sized form you sign when you buy a house) because you won’t find it. A point really boils down to payment of prepaid interest. It may be called discount points, discount fees, or even sometimes lumped in to origination fees on your HUD-1. Any points paid as part of the original purchase of your principal residence are fully deductible as an itemized deduction. Points paid as part of refinancing a loan are deductible over the course of the refinanced loan. Either way, you can get a tax benefit from the payment of points.

Real Estate Taxes

Real estate taxes are one of the primary sources of revenue for local governments throughout the United States. If you have a mortgage you may not even realize that you are paying real estate taxes because the taxes are built into your monthly payment you make to the bank. Rest assured that if you own a home you are paying real estate taxes either through your bank or directly to your local government. These taxes are deductible as an itemized deduction in the year they are paid. So if you pay your 2016 real estate taxes in 2017 then you won’t get the deduction until 2017. The opposite works if you pay your 2017 real estate taxes in 2016.

These are just some of the most well known and beneficial tax benefits you may be eligible for when you buy a home. Things can get a bit more complicated when you finally buy your second home and when you decide to sell your primary residence. These tips are just general in nature and may not apply to your specific tax situation. Make sure to talk to your Certified Public Accountant about the tax deduction which you may be eligible.