Disclaimer: This article has been updated to reflect 2024 tax rules and limits. Consult a tax professional for advice specific to your situation.
Owning a home can pay off at tax time.
Owning a home is one of the biggest financial investments you can make—and it comes with some significant perks at tax time. From deducting mortgage interest to maximizing savings on property taxes, there are plenty of ways homeownership can reduce your tax bill.
Not sure where to start? Here’s a breakdown of the most common tax deductions for homeowners and tips to make sure you’re getting the savings you deserve.
Mortgage Interest Deduction
To claim the mortgage interest deduction, you must itemize using Schedule A, and your mortgage must be secured by your primary or second home. That home can be a house, trailer, or boat, as long as you can sleep in it, cook in it, and it has a toilet.
Interest you pay on a mortgage of up to $750,000—or $375,000 if you’re married filing separately—is deductible when you use the loan to buy, build, or substantially improve your home.
If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts toward the $750,000 limit, and the interest is still deductible.
If you use loans secured by your home for other purposes—like sending your kid to college—the interest on such loans is no longer deductible unless the proceeds are used to substantially improve your home. This rule has been in effect since 2018.
Prepaid Interest Deduction
Prepaid interest, also known as points, is generally 100% deductible in the year you pay it—along with other mortgage interest. To claim this deduction, you must itemize on your tax return.
If you refinance your mortgage and use the funds for home improvements, the points you pay are fully deductible in the same year.
However, if you refinance for reasons like securing a better rate, shortening your mortgage term, or using the funds for non-home-improvement purposes (e.g., college tuition), you’ll need to spread the deduction over the life of the new loan.
Example:
Refinancing into a 10-year mortgage with $3,000 in points would allow you to deduct $300 per year for 10 years.
What Happens if You Refinance Again?
If you refinance before the original loan term ends, you can deduct any remaining points from the previous refinance in the year you complete the new refinance.
Example:
Let’s say you refinanced after three years and had deducted $900 so far ($300 × 3 years). The remaining $2,100 would be fully deductible in the year of the second refinance. If you paid points on the new loan, you’d start deducting those points over the life of the new mortgage.
Reporting Deductions
To claim your deductions, report home mortgage interest and points on Schedule A of IRS Form 1040.
Your lender will typically provide a Form 1098, which lists the points you paid. If you don’t receive it, refer to your closing documents from when you purchased or refinanced your home for this information.
Property Tax Deductions
For 2024, you can deduct local and state taxes, including property taxes, up to $10,000 combined ($5,000 if married filing separately). This limit applies to those who itemize deductions, which many homeowners may not do due to the standard deduction increases in recent years.
If you bought a house this year, check your closing documents to see if you paid any property taxes when you purchased your house. Those taxes are deductible on Schedule A.
Tax Deuctions For Vacation Homes
The rules on tax deductions for vacation homes are complex. Keeping detailed records about how and when you use your vacation home will save you trouble later.
- If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you deduct mortgage interest and real estate taxes on Schedule A.
- Rent your vacation home for more than 14 days and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Your expenses are deducted on Schedule E.
- Rent your home for part of the year and use it yourself for more than the greater of 14 days or 10% of the days you rent it, and you must track income, expenses, and allocate them based on how often you used and rented the house.
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Whether you’re buying your first home or maximizing deductions on your current one, we’re here to guide you through the process. Reach out today to learn how owning a home can work to your advantage at tax time—and every day after!
This article provides general information about tax laws and consequences but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for specific advice; tax laws may vary by state.
