Home Related Deductions
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.com 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 can not deduct.
Most common costs related to a home purchase you might be able to deduct:
- 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 make sure to 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.
Other home related deductions information:
Mortgage insurance premiums: You might qualify 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 ($78,200 if
you are married filing separately).
Refinancing a House. Numerous homeowners have built substantial equity in their home that they 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 percent 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.
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 further than the 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.
Please reference Publication 530 for more detail on what you can deduct and what you can not deduct.
Home Related Deductions
Home Office. If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home.
You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:
As your principal place of business for any trade or business,
As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or;
In the case of a separate structure not attached to your home, in connection with your trade or business.
The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job.
Principal place of business. If you have more than one place of business, the business part of your home is your principal location of business if:
You use it regularly and exclusively for administrative or management activities of your trade or business, and;
You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
Otherwise, the location of your principal place of business generally depends on the relative importance of the activities performed at each location and the time spent at each location.
You should keep records that will give the information needed to calculate the deduction according to these rules. Also keep canceled checks, substitute checks, or account statements and receipts of the expenses paid to prove the deductions you claim.
More information. See Publication 587 for more detailed information and a worksheet for figuring the deduction.
Information provided is thought to be reliable but is not guaranteed to be accurate.
