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Homeowner Tax Deductions, Deductible Items


Owning a home can be expensive between mortgage payments, maintenance, and repairs. On the small bright side, owning a home also provides a variety of tax benefits that can reduce the total amount of income taxes you pay. Some deductions may be eliminated by the government in the future, but for the moment, you still have many tax deduction options.

Property Taxes

You may deduct all property taxes for the year in which you pay them. If you receive a partial refund of property taxes paid, you must reduce your deduction by the amount of the refund.

Mortgage Interest

You may deduct all interest payments on a mortgage for your primary residence or a second home, up to $1 million. If you are married and filing separately, you and your spouse are each limited to deductions up to $500,000. On December 7, 2010, the federal government rejected a proposal to eliminate or reduce this deduction, but the issue is likely to come up again in 2011.

Mortgage Insurance

Homebuyers who make down payments of less than 20% usually must buy private mortgage insurance (PMI), which protects the lender from default. PMI premium payments are tax deductible. This deduction was set to expire at the end of 2010. The tax compromise bill signed by President Obama on December 17, 2010 extended it through 2011. Only homeowners with adjusted gross income of $100,000 or less qualify for the full deduction.

Home Equity Loan Interest

In some cases, you can deduct the interest you pay on a home equity loan, up to the lesser of: - Your home's fair market value minus certain debts, or - $100,000

For married couples filing separately, each spouse is limited to deducting up to $50,000.

Home Improvement Loan Interest

You may be able to deduct the interest payments on a loan you take out to pay for capital improvements to your home. These are improvements that increase its value or extend its life. Examples include adding rooms or building a garage. Maintenance and normal repairs do not qualify for this deduction, even if you need a loan to pay for them.


The fees you pay when buying or refinancing a home are called points, and points paid when buying a home are fully deductible. Those paid for a refinance must be spread over the life of the loan.

Capital Gains Exclusion

When selling your primary residence, you are exempt from paying taxes on up to the first $500,000 of profit ($250,000 if single or married but filing separately). You must have lived in the home for two of the previous five years to qualify.

Selling Costs

When you sell your home, you may be able to deduct your selling costs from your gain on the sale. Gain is the selling price minus closing costs and tax basis. Selling costs may include: - Repairs made within 90 days before sale that were intended to improve your home's marketability - Your real estate agent's commissions - Advertising expenses - Inspection fees

Home Office Deduction

If you run a business out of your home, you may be able to claim a business deduction for a part of your home if you use it as: - Your principle place of business regularly and exclusively - A place where you meet with clients as a normal part of your business - Storage for items used regularly in your business

Be aware that when selling a home for which you took a home office deduction, you may have to reduce your total gain by any allowed depreciation. Talk to a tax professional to be sure you are getting all the deductions for which you are eligible.

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