If you’re buying a home, it’s important to understand its effect on your taxes. There used to be many homeownership tax deductions, so will your taxes decrease? Here’s the scoop:

Recent changes to the U.S. tax code allow deductions for some homeownership expenses. However, most deductions are only available if you itemize your tax returns. If you do, there are several items you can deduct each year to reduce your taxes.

Mortgage Points

One of the biggest deductions you can claim during your first year of homeownership is for mortgage points. Also known as discount points, each one equals 1% of the total mortgage amount and you pay it upfront to your lender to “buy down” your mortgage interest rate. For example, paying one point can reduce your rate by roughly 0.25% and two points would bring it down by 0.5% off the market rate. While the points paid can cost you several thousand dollars at the outset of the loan, they can save you a lot of money over the course of the loan. And they can be deducted on your taxes. You can claim the full amount of points you paid in the same year you buy the house as long as your home loan amount was less than $750,000. If you borrowed more than that there is a limit to how much you can claim.

Mortgage Interest

The mortgage interest deduction allows you to claim the total all the interest you paid on your home loan each year. The one stipulation is that you can deduct interest paid on the first $750,000 of the qualifying property. You can use it on either a first or second home, as long as it is a personal residence.

Property Taxes

Part of being a homeowner is paying property taxes to help with things like upkeep of state and local roads and education. Fortunately, if you itemize, you can deduct a large portion of this expense. For those married and filing jointly, there is a $10,000 maximum deduction for property tax, and a $5,000 max for those single or filing separately.

Home Office

If you run your business from your home, your home office expenses can be deducted for a tax break. However, this does not apply to remote employees, just self-employed homeowners. The amount you can deduct is calculated in one of two ways. First, you can add up and provide documentation of all the expenses you spend to operate your business from home, including internet costs, utilities, maintenance, etc. Second, you simply deduct $5 per square foot of office space you have. If your home office is a 200 square foot room, you’d be able to qualify for a $1,000 tax deduction.

Home Improvement

Any work that increases your home’s value is a capital improvement. You can deduct its cost in the year you sell. Improvements include adding a garage, installing a pool, or replacing the roof or HVAC system. You will need records of all improvements to claim the deduction whenever you decide to sell.

Depending on your situation, there may be even more tax deductions available to you as a homeowner. Talk to your tax professional for more details.

If you’re looking to buy or refinance a home, please give us a call today.

These materials are not from HUD or FHA and were not approved by HUD or a government agency. We do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.