Home Tax Deduction

First Time Homebuyer Tax Credit

Did you buy a home in 2009? If you have not owned a home for the previous 3 years, you may be eligible for the First Time Homebuyer Tax Credit, which is a fully-refundable credit of up to $8,000. If you have previously owned a home for at least 5 consecutive years (in the 8-year period prior to your new purchase) you may qualify for a New Homebuyer Credit of up to $6,500.

Home Ownership Expenses and Deductions

Home Related Deductions

The list provided here is intended for a high level overview and understanding. Everything stated here might have exceptions. During the tax interview on eFile you will be prompted to enter the necessary information. Please reference Publication 530 and Publication 587 for more detail on what you can deduct and what you cannot deduct.

Deductions related to the common costs of purchasing a home:

Home Mortgage Interest
Real Estate Taxes
Mortgage Insurance Premium
Points (charges paid by the borrower to obtain mortgage).

You can claim a deduction on the points you pay when taking out an original home loan, whether the points are paid by you or the seller. Each point is equal to one percentage point of the loan amount. Additionally, you may deduct the mortgage interest and property tax paid for that particular year. You should always keep all records, such as the settlement statement from the title company. Settlement costs, which are also referred to as closing or escrow costs, may include any transfer, recording and title fees, but are not deductible in the current tax year.

Some home related expenses that cannot be deducted:

Fire or homeowner insurance
Amount to reduce principal mortgage.

Home Improvements

Some types of home improvements can potentially lower your tax obligation when you sell your home. Such expenses may include replacing a roof or adding an extension, which increases the usefulness and value of your home. These types of expenses/deductions cannot be used until you sell your home. However, all records should be kept for future use, since any home improvement costs can add up over the years. Be mindful that any normal repair or maintenance on your home is not tax deductible.

Additonal Home Tax Deductions:

Mortgage insurance premiums: you might be qualified to take an itemized deduction on the insurance premium paid.

Note: certain itemized deductions (including taxes and home mortgage interest) are limited if your adjusted gross income is more than $156,400 if you are married filing jointly ($78,200 if you are married filing separately).

Refinancing a House: Numerous homeowners have built substantial equity in their home, which they then use to capitalize on a home equity loan. This is also called a second mortgage because the loan sits right behind the first mortgage (original mortgage for your home). Homeowners can either take the cash in a lump sum or get a home equity line of credit, which is similar to having a low-rate credit card with the added benefit of being tax-deductible. Of particular interest, if all or some of the new home equity loan is used for home improvements, then all or some portion of the points can be deducted in the current tax year.

Accidental Loss: Uninsured losses from fires, floods, earthquakes, storm damage, and theft are current expense deductions. Any accidental, or casualty, losses must be “sudden, unexpected and unusual”. Losses not considered accidental include losses as a result of termite damage and pipe corrosion. Any accidental losses must exceed 10% of your adjusted gross income to be considered a tax deductible expense.

Home Offices. In 1999, tax breaks were expanded for the business use of a home. Homeowners can deduct a portion of their utilities, home insurance, property taxes, mortgage interest, and home repairs as business expenses. Homeowners who work at home can even claim a tax break for depreciation on the business portion of their home.

The business portion of the home must be used “regularly and exclusively” for business, and must be either a principal place of business; a place where the homeowner meets patients, clients or customers; or a separate unattached structure. The homeowner can even be an employee and qualify for the tax breaks.
See Publication 587 for more detailed information.

Ongoing Tax Breaks. The annual mortgage interest you pay on your home mortgage loan is the most significant deduction available for homeowners and saves homeowners tens of billions of dollars every year. Homeowners can also deduct their annual property taxes expense and some types of annual assessments levied by local districts.

Second/Vacation Homes. Homeowners can deduct mortgage interest and property taxes from second homes and vacation homes as long as the properties are rented for 14 days or less per year. If any rental exceeds the 14-day limit per year, the IRS considers this as an income property. When such income property is sold, the seller will either have to pay the capital gains tax or conduct a tax-deferred exchange for other income-producing real estate of equal or greater value. For income property, mortgage interest, property taxes, and other expenses must be deducted against any income produced by the property.

Moving Costs. Homeowners who move to a new job location that is 50 miles or more from their previous living situation, may qualify for a residential moving cost deduction. This rule applies to the self-employed as well as to regular company employees. It also applies to those employees who work from home at least 75 percent (39 weeks) of the next year at or near the new job site. A self-employed worker must work at least 75 percent (78 weeks) of the next two years at or near the new job site.

Additional information about home related deductions

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