Tax Season and Your Mortgage: An Essential Guide

Tax Season and Your Mortgage: An Essential Guide

Tax season isn’t just about filing your return—it’s an opportunity to save money. If you own a home, you may qualify for valuable deductions and credits that can reduce your taxable income and lower your overall tax bill. From mortgage interest and property taxes to home office deductions and energy-efficient upgrades, this guide breaks down the most common homeowner tax benefits so you can make the most of every opportunity.

 

Mortgage Interest Deduction
One of the most significant benefits of homeownership is the ability to deduct mortgage interest. If you itemize your deductions, you can typically deduct interest paid on your mortgage up to certain limits. This can reduce your taxable income and lower your overall tax bill.

Tip: Review your Form 1098 from your lender—it details the mortgage interest you paid during the year.

 

Property Taxes
For most homeowners, the amount you can deduct for property taxes is limited by the SALT (State and Local Tax) deduction cap introduced under the Tax Cuts and Jobs Act:

  • Maximum deduction:
    • $10,000 per year for combined state and local taxes (including property taxes, plus either state income or sales taxes).
    • $5,000 if you are married filing separately.
  • This cap applies to personal-use properties.
  • Rental or business properties are not subject to this cap—their property taxes are generally fully deductible as business expenses.


Points Paid on Your Mortgage
If you paid points to lower your interest rate when you closed on your mortgage, those may be deductible in the year you paid them. This is often overlooked but can provide a nice tax break.


Home Equity Loans and HELOCs
Interest on home equity loans or lines of credit may be deductible if the funds were used to buy, build, or substantially improve your home. Be sure to check IRS guidelines to confirm eligibility.

Tip: If you used the funds for personal expenses (like paying off credit cards), the interest is not deductible.

 

Home Office Deduction
If you work from home and use a dedicated space exclusively for business, you may qualify for the home office deduction. This can include a portion of your mortgage interest, property taxes, utilities, and even home maintenance costs.

Key Requirements:

  • The space must be used regularly and exclusively for business.
  • Applies to self-employed individuals or independent contractors (not typically W-2 employees unless under very specific circumstances).


Refinancing and Tax Implications

If you refinanced your mortgage this year, you may have new deductions available. Points paid during refinancing are generally amortized over the life of the loan, but there are exceptions if you paid off the old loan early.


Energy-Efficient Upgrades

Did you make energy-efficient improvements to your home? You might qualify for tax credits, which directly reduce your tax liability.
Examples:
  • Solar panels
  • Energy-efficient windows and doors
  • Certain HVAC systems
Tip: Check IRS guidelines for current credit amounts and eligibility.


Capital Gains on Home Sale

Selling your home? You may qualify for a capital gains exclusion under IRS Section 121.
Key Details:
  • Single filers: Exclude up to $250,000 of gain.
  • Married filing jointly: Exclude up to $500,000 of gain.
  • Applies only to your primary residence.
  • Eligibility:
    • Owned the home for at least 2 years in the past 5 years.
    • Lived in the home for at least 2 years in that same period.
  • Special rules apply for widowed taxpayers, military service, and home office depreciation.
Tip: Keep records of your purchase price, closing costs, and home improvements—they increase your cost basis and reduce taxable gain.


Stay Organized and Plan Ahead

Keeping detailed records—such as mortgage statements, property tax bills, and receipts for home improvements—can make a big difference at tax time. Good documentation ensures you don’t miss out on valuable deductions and makes filing faster and easier.

Tax season doesn’t have to be stressful. By understanding how your mortgage and homeownership expenses impact your taxes, you can take advantage of deductions and credits that save you money. And if you’re unsure what applies to your situation, a qualified tax professional can help you maximize your benefits and avoid costly mistakes.


RW Towne Mortgage does not provide investment, tax or legal advice. Consult your tax advisor.
 

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