Take advantage of these homeownership-related tax deductions and strategies to lower your tax bill and increase your refund.
- Mortgage Interest Deduction - One of the best deductions itemizing homeowners can take advantage of its mortgage interest deduction. Interest you pay on your mortgage (up to $1 million) is deductible when you use the loan to buy, build, or improve your home.
- Prepaid Interest Deduction - Prepaid interest (or points) you paid when you took out your mortgage is generally 100% deductible in the year you paid it along with other mortgage interest. If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.
- Property Tax Deduction - You can deduct the real estate property taxes you pay on Schedule A. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement. If you bought a house in 2015, check your settlement statement to see if you paid any property taxes at closing. Those taxes are deductible on Schedule A, too.
- PMI and FHA Mortgage Insurance Premiums - You can deduct the cost of private mortgage insurance (PMI) as mortgage interest on Schedule A if you itemize your return. The change only applies to loans taken out in 2007 or later and the deduction is reduced if your adjusted gross income exceeds $100,000. besides private mortgage insurance, there's also government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing, and deducting them is complicated. A tax adviser or tax software program can help you calculate this deduction.
- Energy-Efficiency Upgrades - The Non-Business Energy Tax Credit lets you claim a credit for installing energy-efficient home systems. Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar, in this case, for up to 10% of the amount you spent on certain upgrades. The credit carries a lifetime cap of $500 (less for some products), so if you've used it in years past, you'll have to subtract prior tax credits from that $500 limit.
