How Homeownership Can Lower Your Tax Bill: Exploring Tax Breaks‍ For Homeowners
6 minute read
April 14, 2023


As a homeowner, one of the greatest financial benefits you can enjoy is the reduction of your tax bill. 

Tax breaks for homeowners can help save a significant amount of money each year. 

In this article, we’ll explore the different tax breaks available for homeowners, how they work, and how you can maximize your tax benefits as a homeowner.

Get started on becoming a homeowner.

Understanding tax breaks for homeowners

Before we dive into the specifics of tax breaks for homeowners, let’s first define what a tax break is. 

A tax break is a deduction, exemption, or credit that reduces the amount of taxes you owe. 

For homeowners, there are several different tax breaks available that can help to lower your tax bill.

Tax exemptions for homeowners

Tax exemptions are deductions that reduce your taxable income. As a homeowner, you may or may not be eligible for several tax exemptions. 

One of the most common tax exemptions is the mortgage interest deduction

Mortgage interest deduction

Homeowners can deduct mortgage interest on their home using the first $750,000 of indebtedness (or $375,000 if you are married and filing separately). 

Higher limitations apply if you deduct mortgage interest incurred before Dec 16, 2017 ($1 million singles or $500,000 if filing jointly).

This option can be a significant deduction, especially in the early years of your mortgage when a large portion of your payments go towards interest.

Property tax deduction

Another common tax exemption for homeowners is the property tax deduction. This handy deduction allows you to deduct the amount of property taxes you paid out during the year from your taxable income. 

This choice can also be a significant deduction, especially if you live in an area that happens to have high property taxes.

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Homeowner tax credit

A tax credit is typically a dollar-for-dollar reduction in the amount of tax you owe. As a homeowner, there are several other tax credits available that can help to lower your tax bill. 

First-time homebuyer tax credit

One of the most common homeowner tax credits is the first-time homebuyer tax credit. This credit allows first-time homebuyers to receive a tax credit of 10% of the purchase price up to $8,000. 

The IRS allows you to look up your first-time homebuyer credit account online

Energy-efficient home improvement tax credit

Another homeowner tax credit is the energy-efficient home improvement tax credit. This credit allows you to receive a tax credit of up to 30% of the cost of energy-efficient improvements to your home, such as new windows or insulation.

Other tax benefits of homeownership

In addition to tax exemptions and tax credits, homeownership has other tax benefits.

Capital gains tax exclusion

For example, if you sell your home and make a profit, you may be eligible for a capital gains tax exclusion. 

You may qualify to exclude a maximum of $250,000 of that profit from your income or a maximum of $500,000 of that profit if you are filing joint returns, along with your spouse.

Deducting mortgage insurance premiums

Unfortunately, the IRS announced that an itemized deduction for mortgage insurance premiums expired. You can no longer claim this deduction for 2022.

Let AAA Banking know how we can help you.

Tips for maximizing your tax benefits as a homeowner

To maximize your tax benefits as a homeowner, you can make several positive choices—to make your tax time easier, achieve greater savings, or both.  

Keep accurate records

First, be sure to keep accurate records of all of your expenses related to your home, including mortgage payments, property taxes, and home improvements. This simple choice will make it easier to claim all of the deductions and credits you are eligible for.

Use all homeowner’s tax breaks

Second, be sure to take advantage of all of the tax breaks available to you. Covering all these options may require more research, but it can be significantly worth the effort. 

For example, if you plan to make energy-efficient improvements to your home, research the available tax credits and ensure that your work fits the requirements for the tax break.

When necessary, use professional help

Finally, consider working with a tax professional who can help you to navigate the complex world of tax breaks for homeowners. 

A tax professional can help you identify all the deductions and credits you might be eligible for and ensure you claim them correctly on your tax return.

Common mistakes to avoid when claiming tax breaks for homeowners

While many tax breaks are available to homeowners, homeowners make some common mistakes when it comes time to file their returns. 

No records

One of the most common missteps is failing to keep accurate records of all the expenses related to your home. Without accurate records, it can be difficult to claim all the deductions and credits that might be available to you as a homeowner.

Do I need to use ALL the available tax breaks? 

For example, some homeowners may not realize they might be eligible for the first-time homebuyer tax credit or may not be aware of the energy-efficient home improvement tax credit. 

If you’ve already done some upgrades to your home, they might meet the requirements for that tax credit. Why not use it and save money?

Be honest

Finally, some homeowners may try to claim deductions or credits they are not eligible for. Regardless of whether it was by accident or design, this action can result in penalties and fines from the IRS—a nasty shock if you are trying to make ends meet.

Financial benefits beyond just tax breaks for homeowners

While tax breaks for homeowners can be a significant financial benefit, they’re just one of the many benefits of becoming a homeowner. 

Owning a home can provide financial stability, build equity, and give you a sense of pride and ownership. If you’re considering homeownership, be sure to explore all the financial benefits available.

At AAA Banking, we’d love to discuss your different mortgage options.

Whether you’re preparing to buy your first home or want to lower your monthly mortgage payments through refinancing, we want to help. 

Get started with a local, licensed loan officer today. 

Consult your tax advisor for further information regarding the deductibility of interest and charges

Photo by Mikhail Nilov

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