Tax Time? Don’t Miss These Tax Breaks for Homeowners

Per the IRS , you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of your mortgage debt. However, higher limitations – $1 million (or $500,000 if married filing separately) – apply if you are deducting mortgage interest from a loan taken out before December 16, 2017.

Bear in mind that these are general guidelines to the home mortgage interest deduction. There are additional qualification rules and exceptions that might apply to you. The IRS provides the complete details in Publication 936. Consider checking in with a tax professional or your loan officer to confirm your eligibility for this valuable deduction.

Mortgage points deduction

In broadest terms, points are certain charges you pay in order to get a mortgage. For instance, points can refer to loan origination fees or prepaid interest.  

Sometimes buying a home can feel like you’re paying fees on top of fees. The good news is that you may be able to deduct prepaid interest points (also known as “discount points”) if you itemize deductions on your individual tax return and if certain criteria are met.

IRS Publication 936 provides a flowchart to help you figure out whether you can fully deduct your points for a given tax year (see the section titled, "Points"). 

Want to see if you’re eligible for other mortgage-related tax deductions? The IRS has an interactive tool to help you get started. You will need your filing status, basic income information, and an estimated total of the amounts paid for mortgage interest and points. 

Real property tax deduction

If you itemize deductions on your federal return, you may also be able to deduct the annual real property (or real estate) taxes you pay to your local and state governments.

The deduction for state and local taxes, which include real estate taxes, is capped at $10,000 for joint filers (or $5,000 if married filing separately). 

Good to know: If you use an escrow account to pay your annual real estate taxes, you can only deduct the amount that was paid out to cover those taxes in a given year. In other words, any additional deposits to the escrow account that were not used to pay taxes are not deductible.   

To learn more about the state and local tax deduction for homeowners, see IRS Publication 530.

Energy tax credits

You may be able to catch a tax break when you equip your home with energy-efficient or renewable energy technology. 

Generally, there are two residential energy credits to look out for. 

1. Residential Clean Energy Credit

Generally, you may claim the credit for certain improvements made to your main home (and qualifying second home), whether you own or rent it. The credit applies to new or existing homes located in the US. However, you cannot claim the credit if you’re a landlord or other property owner who doesn’t live in the home.

Qualified expenses include the costs of new clean energy property. For example: 

• Solar electric panels
• Solar water heaters
• Geothermal heat pumps
• Fuel cells (limited to $500 for each half kilowatt of capacity)
• Battery storage technology (beginning in 2023)

Important: Used or previously owned clean energy property is not eligible for the credit.

The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation. From 2022 to 2032, the credit rate is 30% (generally, no annual maximum or lifetime limit).

Keep in mind that the credit rate is always subject to change. You can visit the IRS website for the latest information and complete eligibility rules. Consult a tax professional if you have questions about your specific situation. 

2. Energy Efficient Home Improvement Credit

Generally, you may claim this credit for qualified energy-efficient improvements made to your main home (where you live most of the time) located in the US. The credit is only available for existing homes.

Qualified expenses may include the following:

• Exterior doors, windows, skylights, and insulation materials
• Central air conditioners, water heaters, furnaces, boilers, and heat pumps
• Biomass stoves and boilers
• Home energy audits

See the qualifying requirements and other details at energy.gov. 

The amount of credit you can claim is a percentage of the total improvement expenses in the year of installation. Generally speaking, from 2023 through 2032, the credit equals 30% of certain qualified expenses, up to a maximum of $1,200 (note: heat pumps, biomass stoves, and boilers have a separate annual credit limit of $2,000). For details, visit IRS.gov. 

Important: The availability of these home energy tax credits is always subject to change. Be sure to check in with the IRS or a tax professional for the most up-to-date information. You can also refer to the IRS’s “Home energy tax credits” webpage for qualifying rules and other details. The IRS provides a FAQ page here as well.