Homeownership has many benefits, including the freedom to remodel and make your home your own, building wealth and financial security, and fostering a sense of community. But as this tax season gears up, there’s another benefit you should consider: tax deductions. Whether you’re a new homeowner or planning on becoming one in 2023, here’s what you should know about the tax benefits of homeownership.
Tax Benefits of Homeownership: Standard vs. Itemized Deductions
When filing your taxes, you’ll choose either standard or itemized deductions. Standard deductions are available to all tax filers and can reduce your taxable income by a set amount based on filing status and taxable income. In contrast, itemized deductions are subtracted from a taxpayer’s annual gross income (AGI) to reduce taxable income. Typically, taxpayers will select itemized deductions when the total amount of itemized deductions are larger than the standard deduction. If you need more clarification, your tax professional can help you determine which option makes the most sense.
Tax Benefits of Homeownership: Tax Breaks
When filing your taxes, consider these tax breaks that may benefit you as a homeowner.
The mortgage interest deduction is an itemized deduction that may work in your favor if the total amount of your itemized deductions is greater than the standard deduction. This deduction allows homeowners to subtract the mortgage interest from their taxable income. To qualify, the homeowner’s debt must fall below $750,000 for single filers and married couples who file jointly. The limit for married couples who file separately is $375,000.
Paying taxes is a part of life. If you own a home, it’s no different, with taxes being owed on the state and local levels. Homeowners can deduct up to $5,000 of property taxes if filing single or up to $10,000 for married couples who file jointly.
Private Mortgage Insurance
Homeowners who put less than 20% down on their homes often have private mortgage insurance (PMI) costs. Those homeowners can deduct PMI as an itemized deduction to help save money on their taxable income owed.
Home Office Expenses
Self-employed homeowners who make their home work for them by utilizing a home office can deduct a certain amount from their taxes. However, the IRS has strict guidelines about who can qualify, so check with your tax professional to see if you do.
Medically Necessary Home Improvements
Permanent home improvements that make your home more accessible for medical reasons can result in a tax break if the cost of those improvements is over 7.5% of your AGI. Some deductible improvements include widening doorways, lowering cabinets, and adding stairlifts. It’s important to note, you’ll need a letter from your doctor to prove that these home improvements were medically necessary.
Homeownership is a great accomplishment that brings many benefits, including potential tax breaks. If you’re a homeowner, take the time to consider your tax deduction possibilities or speak with a tax professional. Not a homeowner yet? A trusted mortgage professional can help you navigate the home-buying process so you can enjoy all the benefits of homeownership!
About Michigan Mortgage Lender, Julie Krumholz
For over 35 years, Julie Krumholz has helped homebuyers with different financial backgrounds to make the dream of homeownership a reality. Julie has worked in processing, closing and loan origination, underwriting, QC auditing and has even co-owned a mortgage brokerage firm. Her passion for helping homebuyers has made her a trusted resource for those navigating the homebuying process and beyond.