Tax Deductions Homeowners Are Entitled To

Tax Deductions Homeowners Are Entitled To

Contra Costa County Real Estate | East Bay Homes

Tax Deductions Homeowners Are Entitled To

Many people have heard there are tax benefits to owning your home. And while we’ve been told these benefits exist, we seldom hear about what exact benefits there are, who they apply to, how much they amount to. Here’s a quick guide of some of the tax deductions homeowners can enjoy at tax time.

Mortgage Interest

If you itemize your personal deductions, interest that you pay on your mortgage can be tax deductible, within limits. You can deduct mortgage interest on $750,000 of home buying debt for houses bought after December 2017. Homes purchased before that have a limit of $1,000,000.

See IRS Publication 936, Home Mortgage Interest Deductions.


Home Equity Loan Interest

The interest you pay on a home equity loan for purchasing, building, or improving your main or second home is tax deductible. Your loan must be a home equity loan, meaning that the loan is secured by your main or second home. This means you can deduct the interest paid on a home equity loan if you use it to make improvements or add a room to your home, for instance.

See IRS Publication 936, Home Mortgage Interest Deductions.

Property Taxes

Homeowners may deduct up to $10,000 of their total payments for property tax, as well as
 state income tax or state and local sales tax. If you were required by your lender to set up an impound or escrow account for taxes, you can’t deduct escrow money held for property taxes until the money is used to pay them. Also, a city or state property tax refund reduces the amount of federal deduction you qualify for.

See IRS Publication 530, Information for New Homeowners.


Selling Costs

When you sell your home, you’ll be able to reduce your taxable capital gain by the total of your selling costs. Real estate broker’s commissions, title insurance, legal fees, advertising costs, administrative costs, escrow fees, and inspection fees are all considered selling costs. To get these tax deductions homeowners need to keep good records when selling a home.

All selling costs are deductible from your taxable capital gain.

See IRS Publication 523, Selling Your House.


Capital Gains Exclusion

Married taxpayers who file jointly don’t have to pay taxes on the first $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. Single folks (including home co-owners if they qualify separately) and married taxpayers who file separately can keep up to $250,000 each, tax free.

See IRS Publication 523, Selling Your House.


Mortgage Tax Credit

A home-buying program called a Mortgage Credit Certificate (MCC) allows low income, first time home buyers to receive a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home. The maximum credit is $2,000 per year if the certificate credit rate is over 20%. Qualified buyers have to first apply to their state or local government to receive a  certificate before finalizing a loan. This credit is applicable every year that the buyer keeps the loan and lives in the house purchased with the certificate.

See IRS Publication 530, Tax Information for Homeowners.


Home Office Deduction

If you use part of your home exclusively for business purposes, you may be able to deduct costs related to that portion, such as a percentage of your insurance and repair costs, and some depreciation.

See IRS Publication 587, Business Use of Your Home.



When you finance a home, the mortgage lender will charge “points.” One point is the same as 1% of the loan principal. Home loans commonly carry one to three points, which can amount to thousands of dollars. These points are fully tax deductible.

Refinanced mortgage “points” are also deductible. In this case they’re deductible over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of any old points and begin to amortize the new ones.

See IRS Publication 530, Information for New Homeowners.


We strongly recommend working with a tax specialist to be sure to get the most benefit from the tax deductions  homeowners qualify for. For more information on real estate tax laws, visit

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