Tax deductions for homeowners in 2023

Between mortgage interest, property taxes and other home expenses, there are quite a few deductions you may potentially qualify for, lowering your overall tax bill.

Mika Baumeister

How to deduct mortgage interest, property taxes and more

There are certain tax benefits that homeowners receive that aren’t available to renters. Between mortgage interest, property taxes and other home expenses, there are quite a few deductions you may potentially qualify for, lowering your overall tax bill. Don’t leave money on the table and pay more in taxes than you should. That’s just giving the government free money.

Whether you already own a home or are considering buying one, learn more about the tax deductions and credits available to homeowners.

Key insights

  • Homeowners get a mortgage interest deduction on the first $750,000 borrowed.
  • Vacation homes and rental properties offer income, sales and property tax deductions up to $10,000 per tax return.
  • Tax credits reduce taxes owed, while deductions reduce your taxable income.
  • The standard deduction may be a better option than itemized deductions if you have a small mortgage.

What are tax deductions?

Generally speaking, tax deductions reduce your tax burden by lowering your taxable income. For example, someone with an annual income of $100,000 who qualifies for $15,000 in deductions has a taxable income of $85,000. Deductions can drop you into a lower tax bracket, saving you even more money.

You claim tax deductions by using either a standard deduction or itemized deductions, whichever saves you more money.

Standard deduction

The IRS sets the standard deduction amount annually. For the 2023 tax year:

  • The standard deduction for single or married people filing separately is $13,850.
  • The standard deduction for married people filing jointly is $27,700.
  • The standard deduction for heads of households is $20,800.

For most people, it makes sense to stick with the standard deduction. An estimated 90% of taxpayers claim this deduction.

Itemized deductions

Despite the popularity of the standard deduction, you should run the numbers on your itemized deductions to see if you can save more money that way. By taking itemized deductions related to homeownership, you can lower your taxable income and reduce the amount of taxes you owe. Deductible expenses can range from mortgage interest to property taxes to having a home office.

To get the biggest deduction available, calculate your itemized deductions to compare them against the standard deduction. If your eligible itemized deductions are higher than the standard deduction amount, it makes sense to itemize your deductions on your taxes.

8 homeowner tax deductions

The IRS incentivizes homeownership by providing tax benefits to people who buy homes. These tax breaks usually come in the form of credits or deductions. In basic terms, the difference is that:

  • Tax credits decrease your tax burden by a set dollar amount.
  • Tax deductions make a portion of your income nontaxable.

Tax credits for homeowners often come in the form of incentives for taking specific actions, like installing energy-efficient features. By comparison, tax deductions are a way to offset some of the standard costs of homeownership.

What is not tax deductible for homeowners?

Many of the costs related to owning your home are, unfortunately, not tax deductible. These include:

  • Mortgage payments: Although you may qualify to deduct the interest portion of your payment, you cannot deduct the full payment amount. The portion of your payment that covers the mortgage’s principal is not eligible.
  • Mortgage insurance premiums: Effective as of the 2022 tax year, taxpayers can no longer claim mortgage insurance premiums as a deduction.
  • Home repairs and maintenance: Regular repairs to your residence — like fixing leaky pipes, replacing appliances or painting — are not tax deductible.
  • Utility bills: Utilities like water, electricity and gas are not tax deductions. Internet access, television and digital service subscriptions don’t count either.
  • Upgrades to your home: Upgrades to your home add to the potential profit you’ll make should you ever sell your home, but they’re usually not tax deductible. Examples of things that can’t be deducted include building a second story, adding another bedroom or remodeling your bathroom.
  • HOA fees: HOA dues for your residence can’t be deducted.
  • Mortgage closing costs: Closing costs when purchasing your home, except for the discount points explained above, also can’t be deducted.
  • Homeowners insurance premiums: Homeowners insurance protects your home against fire, theft and other damage, but paying these insurance premiums for your residence won’t qualify you for a deduction.

If you’re unsure of what qualifies as a tax deduction or whether you should itemize or take a standard deduction, consult a tax professional.

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