This blog is for educational purposes only, not an offer of credit or advertisement for current loan terms. It does not provide legal advice. Refer to our loan web pages or consult professional advisors for specific information.
Ready for tax season? MIDFLORIDA Credit Union wants to help Florida homeowners by creating a guide to utilizing the tax benefits of homeownership, showing how you can reduce your taxable income and possibly increase your refund .
Let MIDFLORIDA help you become a homeowner with the best mortgage solutions.
Mortgage interest deduction
This is one of the most well-known tax benefits of homeownership.
This tax rule allows homeowners to deduct the interest paid on their mortgage for loans to purchase, build, or substantially improve their primary or secondary home.
Key points to consider:
- If your loan was taken out after December 15, 2017, you might be able to deduct interest on your mortgage debt up to $750,000 (or $375,000 if married filing separately).
- If your mortgage originated before this date, the limit is up to $1 million in mortgage debt (or $500,000 if married filing separately).
To claim this deduction, ensure you itemize your deductions on Schedule A of your tax return. You’ll also need Form 1098 from your lender, which details the interest you paid during the year.
Property tax deduction
Property taxes are another major deduction for homeowners.
Under the current tax code, you can deduct up to $10K in state and local taxes (SALT), including property, income, or sales taxes.
This cap applies to both single and married taxpayers filing jointly.
Things to note:
- If you escrow your property taxes, check Form 1098 to confirm the amount paid by your lender.
- You can only deduct property taxes paid during the tax year, not amounts that are prepaid for future years.
Tax benefits for home office deductions
Work from home or operate a business from your residence? You may be eligible for the beneficial home office deduction.
Based on the square footage of your home used exclusively for business purposes, this rule allows you to deduct a portion of your mortgage interest, utilities, insurance, and other expenses.
Qualifying criteria:
- The space must be used regularly and exclusively for business.
- Your home office must be your principal place of business.
Energy-efficient home improvement credits
Homeowners who invest in energy-efficient upgrades can benefit from tax credits that reduce their overall tax liability.
These credits encourage environmentally friendly improvements such as:
- Installing solar panels, wind turbines, or geothermal heat pumps
- Adding energy-efficient windows, doors, insulation, or HVAC systems
Types of credits available:
- Residential Clean Energy Credit: This provides a credit for 30% of the cost of—
- Solar panels
- Solar water heaters
- Other renewable energy systems.
- Energy Efficient Home Improvement Credit: Offers up to $1,200 annually for qualifying upgrades like efficient windows, doors, and appliances.
These credits are nonrefundable, meaning they can reduce the tax you owe but won’t result in a refund if your tax liability is zero.
Points deduction
Did you pay points on your mortgage?
Loan origination fees or discount points are often used to reduce your mortgage interest rate.
If your points were paid on a loan to buy or build your primary home, they're typically fully deductible in the year they’re paid.
Additional considerations:
- Points paid during a refinance are generally deductible over the life of the loan.
- Points must meet specific IRS criteria, including being a percentage of the loan amount and customary for your area.
Capital gains exclusion when selling your home
Selling a home can result in significant profits, but the good news is that many homeowners qualify for a capital gains exclusion.
Owning or living in your home for at least two of the last five years means it might be possible to exclude up to $250,000 of capital gains (up to $500,000 if you’re married and filing jointly).
This exclusion can be claimed once every two years and does not require reinvesting the proceeds in another property.
Tax deductions for HELOCs and home equity loans
Have you taken out a home equity loan or home equity line of credit (HELOC)?
If so, the interest may be deductible, provided the loan proceeds were put toward buying, building, or substantially improving your home.
Limitations:
- The same $750,000 mortgage debt limit applies to home equity loans and HELOCs.
- Interest on loans used for personal expenses, like debt consolidation or vacations, is not deductible.
To claim this deduction, retain receipts or invoices to show how the loan funds were spent.
Pro Tip: Keep records to maximize your deductions
Here is one of the best things you can do to take full advantage of the tax benefits of homeownership: maintain accurate records.
Having your essential documents organized and ready for tax season will make your return much easier to manage.
These documents include:
- Form 1098: Provided by your lender, this form reports mortgage interest and property taxes paid
- Receipts and invoices for energy-efficient home improvements
- Records of home office expenses—think: utility bills and maintenance costs
Proper documentation ensures you can substantiate your deductions if audited and helps avoid mistakes on your tax return.
When to consult a tax professional
Your taxes can become equally complex depending on the complexity of your homeownership situation—especially if you purchased, sold, or refinanced your home in the previous year.
Consulting a tax professional is often the smartest choice for many of us.
They can help:
- Maximize your deductions and credits
- Ensure compliance with IRS rules
- Plan for future tax benefits, such as capital gains exclusions
If you’re unsure about your eligibility for specific deductions or credits, seeking professional guidance is smart.
MIDFLORIDA helps you take advantage of homeownership benefits
As you can see, the benefits of homeownership don’t stop with the basic need of having a roof over your head.
Understanding the deductions and credits available allows you to make the most of your investment and potentially reduce your tax burden.
Connecting with the right homebuying and tax professionals means you have a network to help you realize the biggest tax benefits of homeownership.
If you're just starting your homeownership journey or considering refinancing your existing home, connect with the dedicated team at MIDFORIDA today.
Refinance with us and see why thousands of Floridians have chosen MIDFLORIDA as their mortgage solution.
