2020 BOISE IDAHO REAL ESTATE BLOG
11 Tax Deductions for Homeowners Main Treasure Valley Life

In keeping with June being National Homeowner Month, we thought we would bring you a list of tax deductions that you can use as a homeowner. 

There are plenty of perks to owning a home, including these homeowner benefits that go beyond money.

Here is what you can deduct on your taxes every year as a homeowner.

Mortgage interest

This is one of the few things to look forward to when doing your taxes. Any interest you apy on a loan secured by your primary or secondary home can be deducted. This does not include investment properties.

Property Taxes

As a homeowner, you can deduct up to $10,000 of state and local property taxes on your primary home and other real estate you own. If you are married but filing separately, you can deduct up to $5,000.

Real estate property taxes paid at settlement or closing

When you close on the home you buy, the property’s real estate taxes are divided between the buyers and sellers for the year that they owned the home. If you bought a home in 2020, for example, you can make that deduction when you file  your taxes in 2021 for 2020.

Home improvement

In general, home improvement projects are not considered tax-deductible, so you can’t get a refund for your hardwood floors, fully-furnished basement bar, or wraparound deck. However, there are ways that may qualify for a tax deduction. Check with your state or tax professional first.

  • If you improved your home’s energy efficiency in 2020, you can claim a 26% tax credit for the cost of the upgrade (the most common being solar panels). However, this tax credit will reduce to 22% for 2021.
  • If you made improvements for medical reasons, you can deduct those improvements as a medical expense. Examples include wheelchair ramp installation or shower modifications as a result of illness or other medical necessity.
  • Interest on payments for home equity lines of credit or home loans that are used to build or substantially improve the value of the home can be deducted as well. Again, check with state laws and a tax professional to see if you qualify.

Active duty military moving expenses

According to the IRS, active duty military personnel can deduct some moving expenses that were un-reimbursed<https://www.military.com/pcs/pcs-military-taxes.html> if the move was a permanent change of station (PCS). Some of these include

  • Using a moving company or renting a trailer to transport all belongings to a permanent location.
  • Travel expenses incurred as a result of the move, which can include lodging and airfare. Meals are not deductible.
  • Up to 30 days of consecutive storage of belongings from the last day in the old residence to the first day in the new residence.

Mortgage Points

Mortgage points are charges paid by the borrower to obtain a mortgage. Points are also called Loan origination fees, maximum loan charges, discount points, or loan discount. If you paid all of the qualifying points during the year, you can deduct the full amount on your taxes. Consult your tax professional for requirements for payment and deduction.

Loan refinancing

If you refinance your loan and you use some of the money to make a home improvement and fulfill certain mortgage points, you can deduct the points related to the improvement for that year.

Prepaid interest

If you paid interest in advance during the home purchasing process, you can claim that amount. However, if you paid more interest than necessary, you can’t claim the full amount of overpaid interest for that tax year. Instead, you claim the full amount of the prepaid interest over the life of the loan.

Mortgage prepayment penalty

Some mortgage agreements include a penalty charge for paying off the mortgage ahead of time. If you do pay off your home ahead of schedule, kudos for awesome money management. If the prepayment penalty is not for a specific service or cost in connection to your loan, you can deduct the penalty as home mortgage interest.

Mortgage interest credit.

The mortgage interest credit is designed for lower-income individuals to afford owning a home. If you qualify, you can claim the credit as part of your interest deduction

Private Mortgage Insurance

If you have Private Mortgage Insurance (PMI), that means you bought your home with a down payment less than 20%. If you have PMI, you may be able to deduct it from your taxes. In addition, certain loan types have fees similar to a PMI that can be a deduction. VA loans have a funding fee, and Rural Housing Administration loans have a guarantee fee. These can be deducted for the year they were issued. The limitation on PMI deductions is that they must be allocated over the term of the mortgage or 84 months, whicher is shorter. If you have a VA or RHA loan, these limitations do not apply.

There is a lot to unpack in this article. If you have questions, talk to your lender and tax professional for detailed information.

 
Posted by AndrewS at 6/3/2020 5:41:00 AM
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Michelle Penick, Boise Idaho Real Estate Agent

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Michelle Penick

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