Easy Guide: Tax Breaks for Homeowners and How They Work

Tax time has arrived in the United States, running from January 27 to April 15. During this period, the IRS expects to receive over 140 million tax returns.

For homeowners, this is a prime time to tap into special tax benefits that can help lower what they owe and potentially increase their refunds.

Owning a home comes with a hefty price tag, leading many to search for the best mortgage deals. Thankfully, the IRS provides several tax breaks, such as credits and deductions, which can reduce the amount of income that gets taxed, ultimately lowering tax bills.

While many people know about the mortgage interest deduction, there are other perks that homeowners might not be aware of.
 

Top Tax Breaks for Homeowners

For those owning homes, the main tax advantages come in the form of deductions, which help to reduce taxable income—meaning you pay taxes on a smaller portion of your income. When filing taxes, homeowners have a choice: take a standard deduction ($14,600 for singles, $29,200 for married couples filing together, and $21,900 for heads of households) or go for itemized deductions.

Itemized deductions can include things like mortgage interest, state taxes paid, and money given to charity.

To claim these homeowner deductions, you need to itemize them on Schedule A of the Form 1040. The choice between itemizing and taking the standard deduction depends on whether your itemized deductions add up to more than the standard deduction.

Tax credits, which differ from deductions, lower what you owe dollar for dollar and are available even if you don't itemize.
 

Deduction for Mortgage Points

When buying a house, you can pay upfront for “points” to lower your mortgage interest rate. Each point, which is a fee paid to the lender, typically reduces your interest rate by 0.25%. This reduction can save you money over the life of your mortgage.

Since the IRS views points as prepaid interest, you can deduct them. This deduction is added to your total mortgage interest amount and entered on Line 8 of Schedule A, Form 1040.

Check out: New First-Time Home Buyer Tax Credit Proposal Aims to Help Prospective Homeowners
 

Getting the Most Out of Your Tax Benefits

These tax benefits are designed to ease the financial load of homeowners. By taking advantage of deductions for mortgage interest, tax credits, and points, you can save money.

It’s worth looking into all available options to ensure you’re getting the most from your tax return before the April 15 deadline.

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