Homeownership comes with many expenses, but one small perk is that you can enjoy certain tax advantages. Some of these include credits and deductions for things like paying for mortgage insurance, property taxes, and making energy-efficient upgrades to your home.
When tax season nears, it’s your cue to gather all those important documents and prepare for a complicated (and sometimes confusing) filing process. If you’re a homeowner, you may have some extra work cut out for you, but you’ll also enjoy some rewards in the end.
Preparing to file taxes is far from anyone’s favorite activity, but finding extra savings can make the process more enjoyable. That’s why Jerry
, the home insurance broker and comparison app, is here to review some of the tax benefits you can claim if you own a home. RECOMMENDEDNo spam or unwanted phone calls · No long forms
Deductions vs. credits
While they’ll both save you money on your taxes, there are key differences between tax deductions and tax credits in the way they’re applied.
Deductions are subtracted from your adjusted gross income (AGI). Credits, on the other hand, are taken from your total taxes due.
Tax deductions for homeowners
The following are some common deductions homeowners can take advantage of, with more detailed explanations down below.
| |
|---|
| Anyone who files taxes can claim this. To claim other deductions, you’ll have to itemize |
| Deduction for private mortgage insurance (PMI) paid |
| Deduction for interest paid on a mortgage |
| Deduction for mortgage points purchased |
| Part of a deduction for state and local taxes paid, which includes property taxes |
| Deduction for small business owners who have a dedicated workspace in their home |
Standard deduction
When filing your taxes, you have the choice between taking a standard deduction or itemizing your deductions. You can only select one or the other. Essentially, you’ll want to choose the option that gets you the larger tax deduction.
Here’s what the standard deductions
for the 2021 tax year look like: $12,550 for single and married filing separately
$18,800 for heads of households
$25,100 for married filing jointly
To get deductions for things like mortgage points and interest paid, you’ll have to itemize.
Mortgage insurance deduction
If you made less than a 20% down payment on your home, you might be paying for private mortgage insurance
(PMI). If you got a mortgage in 2007 or later, you might be able to treat your PMI payments as mortgage interest paid, depending on your adjusted gross income (AGI). The potential deduction starts phasing out at AGI levels of $50,000 for those filing singly and $100,000 for those filing jointly, and they’ll gradually get smaller from there until your level of income renders you ineligible.
Mortgage interest deduction
You can receive a tax deduction for the interest you’ve paid on your mortgage.
You can claim this deduction on the first $750,000 of your mortgage (or $375,000 if married filing separately).
If you obtained your mortgage before December 16, 2017, you can claim this deduction based on a higher limit of $1,000,000 (or $500,000 if married filing separately).
If you purchased a home during the most recent tax year, you’ll also want to keep in mind any mortgage interest you paid when closing on your house.
Mortgage discount points deduction
Mortgage discount points are a percentage of mortgage interest a homebuyer can choose to pay upfront. Mortgage borrowers often opt to do this to get a lower interest rate on their loans.
Real estate tax deduction
You can deduct up to $5,000 for single filers or up to $10,000 for joint filers for payments made toward state and local taxes—which includes property tax.
The 1098 form from your mortgage lender should have the amount you paid for property taxes if they’re paid through an escrow account.
If you bought a house during this tax year, you can also include any real estate taxes you prepaid at closing.
Home office deduction
This deduction is intended for small business owners and self-employed workers who have a dedicated space specifically for work in their homes. If you work remotely for another employer, you won’t be able to claim this deduction.
There are a couple of ways to calculate your deduction: you can use a flat square-footage rate up to a certain limit, or you can use the percentage of square footage the workspace takes up in your home.
One catch is that your workspace has to be exclusively used as your business—it can’t simply be your kitchen table or another room that serves dual purposes.
You can also include business expenses over the year with this deduction, like your mortgage payments, utilities, and other items. Make sure to keep your receipts if you want to take advantage of this deduction!
Claiming home office deductions can be tricky because there are many stipulations and exceptions to claim it correctly, so keep that in mind.
Tax credits for homeowners
Mortgage credit certificate
A mortgage credit certificate (MCC) helps make homeownership more affordable for low- and moderate-income households by reducing tax liability. An MCC is a document a mortgage lender will give to a borrower that allows some mortgage interest paid to be converted into a tax credit.
Energy efficiency credit
You can score tax credits if you made energy-efficient improvements to your home in 2021. Some qualifying upgrades could include solar panels, energy-efficient windows, or a geothermal system.
How much credit you get depends on when the item started servicing your home.
To see what other improvements might qualify, you can visit the Office of Energy Efficiency and Renewable Energy’s website.
MORE: Are there drawbacks to owning a hybrid car?
How to save more with home insurance
Taxes aren’t the only area where you can save when it comes to homeownership. You can also find big savings with the right home insurance policy, especially when you bundle with car insurance or other policies.
If you’re looking to update your home insurance, the Jerry
app can help you quickly find and compare quotes from top insurance providers, like Allstate and Nationwide. When you find the right policy for the right price, Jerry can help you cancel your old policy upon request and get your new one set up.
“Jerry
was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.
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