How to Claim and Report Tax Deductible Home Expenses
What Are Home Tax Expenses or Home Ownership Tax Deductions?
There are many different home-related expenses which you can deduct on your tax return to reduce your taxable income. During your online tax preparation on efile.com, you will be prompted to enter the information necessary to claim these home tax deductions.
What Tax Deductions Can I Claim Related to the Common Costs of Purchasing a Home?
You may claim the following expenses on your tax return if you itemize:
- Home Mortgage Interest payments (usually reported on Form 1098)
- Real estate taxes
- Mortgage points (each point is equal to one percentage of the loan amount)
What Are Home-Related Expenses That Cannot Be Deducted?
The following expenses cannot be claimed as tax deductions:
- Fire, flood, or homeowner insurance payments
- Amounts paid to reduce your mortgage principal
- General home improvement and maintenance expenses
- Mortgage Insurance Premium payments
- Home energy savings
What Types of Home Improvements Can Be Claimed as Tax Deductions?
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.
What Are Additional Deductible Home Expenses and House Tax Deductions?
You may also claim tax deductions for the following expenses:
- Refinancing a House: Numerous homeowners build substantial equity from their home and use it to take out home equity loans. 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: 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 Home/Vacation Home: 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. Vacation and second homes include condominiums, houses, apartments, mobile homes, boats, and similar 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.
Where Can I Find More Information on Tax Deductible Home Expenses?
Additional information about home related tax deductions may be found in IRS Publication 530-Tax Information for Homeowners.
What Other Tax Breaks Can I Claim on My Tax Return?
See what other tax deductions and tax credits you may qualify to claim on your tax return.