Understanding Tax Savings for Homeowners

Tax Deductions vs. Tax Credits: What’s the Difference?

• Tax Deductions reduce your taxable income. For example, if you earn $50,000 and claim $5,000 in deductions, you will only pay taxes on $45,000.
• Tax Credits directly reduce your tax bill. If you owe $10,000 in taxes and claim a $2,000 credit, your final tax bill drops to $8,000.

💡 Pro Tip: Keep detailed records of all eligible expenses to make tax filing smoother and maximize your deductions.

Itemized Deductions vs. Standard Deduction

You’ll need to choose between itemizing deductions or taking the standard deduction:

• The Standard Deduction is a fixed amount:
  • Single & Married Filing Separately: $15,000
  • Head of Household: $22,500
  • Married Filing Jointly: $30,000
• Itemized Deductions include mortgage interest, property taxes, and other qualified expenses.

🔎 Which is better? If your itemized deductions exceed the standard deduction, itemizing could save you more money!

---

Top Homeowner Tax Deductions & Credits

1. Mortgage Interest Deduction

• You can deduct interest on loans used to buy, build, or improve your primary residence or a second home.
• Limits:
  • Single & Married Filing Jointly: Interest on mortgages up to $750,000.
  • Married Filing Separately: Interest on mortgages up to $375,000 per person.
• Your lender will send you Form 1098, showing how much interest you paid.

📌 Example: If you paid $25,000 in mortgage interest in 2025 and file jointly, you can deduct the full amount from your taxable income.

2. Property Tax Deduction

• Homeowners can deduct state and local real estate taxes on a primary or secondary home.
• The deduction is capped at $10,000 (including state income taxes).

🔎 What’s NOT deductible? Special assessments (e.g., a sewer line upgrade that directly benefits your home) and fees for local services (e.g., trash collection).

3. Home Equity Loan Interest

• You can deduct interest on a home equity loan or HELOC, only if the funds are used to buy, build, or substantially improve your home.
• Non-eligible uses (like vacations, debt consolidation, or car purchases) do not qualify.

4. Home Improvements & Capital Gains Tax

• Home improvement costs aren’t usually deductible, but they increase your home’s cost basis—which can reduce capital gains taxes when you sell.
• Capital Gains Exclusion:
  • Single: Exclude up to $250,000 in profits from taxes.
  • Married Filing Jointly: Exclude up to $500,000.
• To qualify, you must have lived in your home for at least 2 of the last 5 years.

📌 Example: If you bought a home for $200,000, spent $50,000 on improvements, and sell it for $350,000, your taxable profit is only $100,000—and could be completely tax-free!

5. Energy-Efficient Home Improvement Tax Credits

• Claim up to 30% of qualifying expenses for energy-efficient upgrades (max credit $3,200).
• Examples: Solar panels, heat pumps, energy-efficient windows, and insulation.

🔎 Bonus Tip: Some states offer extra tax breaks or rebates for green upgrades—check local programs!

---

Record-Keeping Tips for Homeowners

✅ Keep mortgage statements, tax bills, and home improvement receipts. ✅ Store digital and physical copies securely. ✅ Retain records for as long as you own the home + 3 years after selling.

---

Final Thoughts: Reduce Your Tax Bill & Maximize Savings

Owning a home comes with valuable tax benefits—from mortgage interest and property tax deductions to energy credits and capital gains exclusions. Keeping good records and understanding your options can help you save thousands.

📩 Need a tax professional or real estate advice? Contact us today!

📝 Disclaimer: This article provides general information and is not a substitute for professional tax advice. Always consult a qualified tax professional for personalized guidance.

---

Sources:

• IRS
• NerdWallet
• TurboTax