Tax season is here again, and that means homeowners can qualify to rake in a nice chunk of money from their income taxes in 2025. Of course, the size of the refund depends on different factors. First, let’s discuss why homeowners will qualify for larger tax refunds.
Homeownership has always been a great motivator for hard-working everyday people to achieve one of their biggest dreams in America. Owning a home provides stability, a sense of pride in the community, and a powerful way to build residual wealth. Unlike renting a home or an apartment, owning a home allows the owner(s) to build equity as property values appreciate and mortgage balances decrease.
But the financial commitments of owning a home doesn’t end when a homeowner completes the process of obtaining a mortgage and making a down payment. Just four years ago the average cost of home maintenance in 2024 was $18,118, a 26% increase. CNN reports in its online edition that even though items such as food and gas have gotten cheaper, shelter increased 5.4% year-over-year in May, according to the Bureau of Labor Statistics. That’s well above the overall inflation rate of 3.3%.
Jeff Ostrowski, analyst at Bankrate, told CNN that the main drivers of the spike in homeownership expenses are the cost of maintenance and insurance. Home insurance premiums have surged in recent years, in part because of extreme weather.
“My homeowners insurance doubled, with no notice – nothing,” said Jennifer Schauer, who bought her home in Novato, California, in 2021. Schauer said some of her neighbors lost their homeowners insurance coverage altogether because of the mounting threat of wildfires in the region.
“My neighbors said I was lucky our insurance just doubled and it wasn’t canceled,” she said.
Does a Larger Tax Refund Sound Good to Offset Homeownership Expenses?
The upside of all those costs is that you may receive a larger tax refund as a result of your home’s tax credits and deductions. Of all 50 U.S. states, the average single-family home, priced at $436,291, according to Redfin, costs $18,118 each year, thus adding $1,510 per month to a mortgage payment throughout the country. During the covid-19 pandemic year of 2020, the same expenses totaled $14,428 per year for a typical single-family home-which equates to $1,202 monthly.
In today’s financial climate, homeowners must educate themselves to optimize their tax refund when they file their income tax return. American taxpayers must be educated about the tax benefits awaiting them. The majority of homeowners paying mortgages should know they can write off payments toward their loan interest, but many of the tax advantages and deductions associated with home ownership are less clear. This article explains most potential tax benefits available to homeowners in order to maximize your tax return.
Learn more about taxes, including the benefits of filing your taxes as soon as feasible and how to set up an online account with the IRS.
Tax Breaks: How it All Break Down
Tax deductions, or decreases in your taxable income, account for the majority of homeowners’ federal income tax benefits. You pay less in taxes if a smaller portion of your income is subject to taxes. You have to choose whether to itemize deductions like charitable contributions and state taxes or accept the standard deduction, which is $14,600 for single taxpayers, $29,200 for joint filers, or $21,900 for heads of household or married individuals filing separately, when you file your taxes.
Itemization
Itemization is not necessary for homeowner tax credits. These credits, which immediately reduce your tax bill, are normally available to you. To itemize your deductions use Form 1040 Schedule A to benefit from homeowner tax deductions. If your itemized deductions exceed the standard deduction, you will have to decide whether to itemize.
The best tax software can assist you in completing all of the tax forms listed in this article and in making a rapid decision on whether to itemize. Keep in mind, you don’t have to itemize to receive homeowner tax credits. Generally, you can still receive such credits whether you itemize deductions or choose not to.
Why Mortgage Deductions Provide Larger Tax Breaks
The annual interest paid on your home loan, or mortgage interest, is one of the most popular tax deductions for homeowners. For new homeowners, whose payments go toward loan interest during the first years of a mortgage, it’s also frequently the most profitable.
Both joint and single taxpayers are eligible to deduct all mortgage interest payments on the first $750,000 of their mortgage debt, or up to $1,000,000 if they are deducting interest from mortgage debt prior to December 15, 2017. You can write off half of those sums ($375,000 or $500,000, respectively) if you file separately from your spouse.
Your lender should have sent you IRS Form 1098, during early 2024. A 1098 is required to deduct your mortgage interest. Line 8 of 1040 Schedule A can then be used to enter the amount from Line 1 of that Form 1098.
Purchasing Mortgage Points
Homebuyers have the option to purchase mortgage points, also known as “discount points,” as a strategy to lower the interest rate on their mortgage when purchasing a property. For example, for each additional 1% of the loan amount paid by the buyer on top of their down payment, there is a corresponding reduction of approximately 0.25% in the interest rate. However, the specific rate deduction may vary depending on the lending institution and the terms of the loan agreement.
Taking advantage of discount points on a 30-year mortgage can lead to significant cost savings by reducing the overall interest payments over the loan’s duration. Furthermore, purchasing discount points may also provide tax benefits. The Internal Revenue Service defines mortgage points as prepaid interest, allowing you to include the point cost in your total mortgage interest when reporting on Line 8 of Form 1040 Schedule A.
Mortgage Credit Certificates can Help New Homeowners Save
Homeowners who have received a Mortgage Credit Certificate from a state or local government — usually acquired via a mortgage lender — can get a percentage of their mortgage interest payments back as a tax credit. Mortgage certificate credit rates vary based on states and can range between 10% and 50% up to a maximum credit of $2,000.
This homeowner tax tip is most effective if you are a first-time homeowner, which is generously defined as not living in a home that you’ve owned for the past three years. If you’re buying your first home, be sure to ask your lender or mortgage broker to see if you qualify for an MCC.
To file for your mortgage-interest tax credit, use IRS Form 8396. Remember, you don’t need to itemize deductions to claim tax credits.
Deducting Property Taxes; But IRS Limit Deductions
Property taxes, also known as local and state real estate taxes, are eligible for tax deductions, albeit at a reduced rate post-2017.
The Tax Cuts and Jobs Act of 2017 limits the deduction to a maximum of $10,000 from property taxes, state, and local income taxes combined. Previously, there was no cap on deducting property taxes in full. To claim the deduction for property taxes, it is essential to keep a record of annual property tax payments.
Additionally, real estate taxes may be detailed in Box 10 of Form 1098 provided by your mortgage lender. The total real estate taxes paid during the year should be reported on Line 5b of 1040 Schedule A for tax purposes.
Home Improvements for Medical Reasons
Medical costs are only eligible for a sizable tax deduction if they exceed 7.5% of your adjusted gross income, or taxable income. You can claim a tax deduction for medical expenses for any house changes tied to medical issues, such as safety bars, accessibility ramps, wider entrances, railings, and elevators.
Maintain a record of all your invoices and receipts, and on Line 1 of 1040 Schedule A, list the total amount of the additions or renovations together with all of your other medical and dental costs.
Most Expensive Homeownership Costs
Click on link: Here are the states with the highest and lowest costs of homeownership, according to Bankrate:
- Hawaii. With an average annual cost of $29,015, Hawaii is an expensive place to own a home. Much of the tab stems from high home values. With a typical single-family home price of $993,000, applying our estimated maintenance costs of 2 percent of the home’s value leads to a hefty $19,860 per year.
- California. The Golden State is another place where ongoing costs are inflated by home values. The median single-family sale price in March was $848,300, which means maintenance costs of $16,966 a year. Homeowners in California also pay average annual property taxes of $6,832.
- Massachusetts. Massachusetts property taxes are a big lift – the typical bill is $7,413 – and single-family home prices are high. At a median sale price of $624,200, you get estimated home maintenance costs of $12,484. Homeowners insurance is also pricier than average, at $1,918 a year, typically.
- New Jersey. Garden State property taxes average $10,026 a year, the highest in the nation. Single-family home prices are a median of $502,400, translating to maintenance costs of $10,048. Homeowners insurance costs an average $1,466 a year.
- Connecticut. Another state with high property taxes, Connecticut homeowners pay an average of $8,073 per year. Single-family home prices aren’t as high – the median of $435,900 leads to annual costs of $8,718, just below the national average.
The recent data indicates a significant rise in the average hidden costs associated with owning a home across the nation, showing a 26 percent increase. Among all states, Utah experienced the most substantial percentage increase at 44 percent, followed by Idaho at 39 percent, and Hawaii at 38 percent, from 2020 to 2024. This surge can largely be attributed to the notable rise in home prices that occurred during the pandemic, with property values serving as the primary factor influencing estimations.
What’s Not Tax Deductible
Although Homeowners are Eligible for Numerous Tax Benefits; Here are Costs Associated with Owning a Home That’s Not Tax Deductible
- The amount you put down on a mortgage
- Mortgage installments applied to the amount owed
- Mortgage installments applied to the main amount owed
- Water, gas, and electricity are considered utility costs
- Insurance for homeowners or fires
- Cleaning the house or trimming the grass
- The approximate decreasing value of your house
Conclusion
Taxes for each person can vary because certain situations don’t always apply the same. Do not forge ahead and make major tax decisions based on this article. First, consult a tax professional in your city with the education and professional skills to help you with both federal and state tax laws.
Texas-based Senior NewsBlaze Business Reporter & Associate Editor Clarence Walker can be reached at HoustonNewsToday@Yahoo.com
