Tax Breaks for Homeowners Amid Inflation


During tax season, everyone is looking to take as many deductions and tax breaks as possible. Tax breaks for homeowners can come in many forms and can help even more these days as inflation continues to rear its ugly head.

Being a homeowner is a great way to build equity, take pride in your home, and establish yourself, but it also comes with a variety of responsibilities. Often, these responsibilities come in the form of costs.

Such expenses can include things like property taxes, home insurance premiums, repairs, property mortgage insurance, homeowners association (HOA) fees, and more. But thankfully, you can use some of these expenses as homeowner tax deductions.

Knowing the tax deductions for homeowners that are available is important for maximizing your tax refund or at least to avoiding paying the government more than you need to. Learn more about where you can and can’t catch tax breaks as a homeowner.

Disclaimer: We here at Freedom Insurance Group pride ourselves on delivering homeowners like you a wealth of information that is important to help you protect your home, save money, and any other tips we find valuable for our audience. But we are not licensed financial professionals and this is not financial advice. This guide is meant to be a jumping-off point of what you can claim on taxes as a homeowner and nothing more. Before making any financial decisions, especially involving your taxes, it’s always important to speak to a licensed financial professional.


5 Home Owner Tax Breaks Available

While tax breaks for homeowners come in many different shapes and forms, you’ll still want to understand how they work. This is because there are multiple ways to avoid overpaying on your tax bill but a variety of rules and stipulations also apply.

We can’t stress enough how important it is to double-check with a licensed financial advisor before applying for any homeowner tax deductions, but the five below can help guide you through the tax season. Here are practical home owner tax deductions you may be able to apply when filing:


 1. Property Taxes

Homeowners who choose to itemize their tax returns have the ability to deduct property taxes paid on their primary residence as well as any other real estate owned. Your deduction can be applied to property taxes starting from the date of purchase, which is typically noted on the settlement statement obtained at closing.

However, if the buyer agrees to pay the seller’s past-due taxes at the time of closing, these taxes cannot be deducted from their tax return. Instead, this payment must be considered as part of the overall cost of purchasing the home.

It is important to note that starting in 2018, the total amount of state and local income taxes that can be deducted, including property taxes, are limited to $10,000 annually.

It’s also important to note that there are many things that are not able to be deducted, related to your property taxes. This includes charges associated with the provision of services, such as water or trash collection, as well as flat fees to settle fines, such as a fee for lawn mowing due to noncompliance with local laws, and assessments for local benefits, such as the construction of a sidewalk outside of your residence, are examples of deductible expenses.

Homeowners can, however, have the costs of maintenance and repairs included in their tax bill deducted, but only if these expenses are specifically itemized by the tax authority in your bill.

This can also become complicated for homeowners paying their property taxes via escrow. You can’t use those payments that don’t count as tax deductions for home owners and in most cases, only the amount paid to tax authorities by your lending institution is counted for a deduction. You’ll find this amount most commonly on your Form 1098, which is used to report to both you and the Internal Revenue System (IRS).


2. Interest From Your Mortgage and Discount Points

The mortgage interest deduction is a home owners tax break many may find applies. It works by allowing you to claim all of the interest paid within a year toward your mortgage for a tax break. Your deduction can equate to the first $750,000 of a qualified personal residence debt on either your primary or second home.

Your mortgage lender will provide you with a Form 1098 that shows the total annual interest you pay on your mortgage and you can report it on Schedule A of your 1040 form.

Additionally, mortgage points, also known as discount points, may help you receive a tax deduction. These points are purchased at closing when you first receive your mortgage and can help you lower your interest rate over the loan’s lifetime.


3. Capital Gains Tax Breaks From Selling Your Home

Many homeowners may be concerned about being responsible for paying capital gains tax when selling their homes. However, thanks to the Taxpayer Relief Act of 1997, which provides an exemption from capital gains tax for those who meet certain qualification criteria, you may be able to receive a tax break.

To qualify, you must have lived in and owned the home for at least two of the past five years and not have used this tax break within the previous two years. Joint filers are exempt from paying capital gains tax on home profits up to $500,000, while individual filers are exempt from paying tax on home profits up to $250,000.


4. Home Improvements (If You Sell Your Home)

Homeowners’ tax deductions come in many different forms, and while most of our list is focusing on those that apply when filing taxes, there are other types available. Such as the potential for tax breaks if you sell your home and undergo home improvements. However, you can’t deduct the expenses in the year you incur them and must keep a record of the improvements to help lower your taxes when selling your home.

For tax purposes, home-related expenses are generally divided into two categories: the cost of repairs versus the cost of improvements. The cost of capital improvements is added to your home’s cost basis, which is the amount that will be subtracted from the sales price to determine the profit made upon selling the property. A capital improvement is defined as any project that enhances the value of your home, extends its useful life, or repurposes it for a new function.

Additionally, if you’re looking for tax breaks without having to sell your home, some home improvements may apply. Thanks to the Residential Renewable Energy tax credit and the Inflation Reduction Act of 2022, homeowners installing qualifying energy-efficient components, such as solar panels, can receive tax breaks for doing so.


5. Improvements for Accessibility Purposes

If you’ve made home improvements to enhance accessibility for disabled members of your household, you might be eligible for extra tax deductions. The Capital Expenses section of the IRS Publication 502, Medical and Dental Expenses, outlines the types of improvements that are deductible. You can deduct the expenses incurred to make your home accessible, after subtracting any home appreciation that may have resulted from the improvement.


Is Home Insurance Tax Deductible?

No, home insurance isn’t tax deductible under normal circumstances. When your home is your primary residence and not generating income, homeowners insurance is not tax deductible. However, you may be able to receive a deduction if you are using your home as a rental home or renting it out part-time through a service such as Vrbo or Airbnb.

It’s important to remember, however, that such activity may require business insurance or landlord coverage. Failure to disclose such information with your home insurance carrier can cause you to lose your coverage, have claims denied, etc. Always speak with a licensed home insurance agent before renting out your residence to additional parties.


Is Car Insurance Tax Deductible?

No, car insurance is not tax deductible in terms of personal auto coverage. You can deduct commercial auto insurance if you use your vehicle for business-related purposes. But doing so means you’ll need a commercial auto insurance policy.

When drivers operate a vehicle for business-related purposes of any kind, they are not covered by a personal auto insurance policy. It can be something as complex as driving your truck filled with supplies to a contracting job, as simple as making a delivery across town for your artisan, online goods store, or participating in ridesharing. No matter how you are operating, if it’s business-related, you’ll need a commercial auto policy to stay covered.


Is Mortgage Insurance Tax Deductible?

Mortgage insurance is no longer available as a tax reduction. Private mortgage insurance (PMI) is issued by your lending institution as a way to protect their interests. When homeowners purchase a home with less than 20% of their down payment, PMI is applied.

Previously, those following certain guidelines were able to apply PMI as a homeowner tax break, according to the criteria below provided by H&R Block:

  • Payments were made on a qualified mortgage insurance contract that came to be after December 31, 2006.
  • The mortgage is new.
  • You are itemizing your deductions.

But following the tax year 2020, such a deduction went away. It was extended by Congress for 2021, but it was not extended again for 2022, according to the IRS. Therefore, as of now, it appears that PMI cannot be deducted by homeowners looking to save on taxes.

Should such deductions become available once again, it’s also important to understand that there are household income restrictions that may also apply.

Previously, if your adjusted gross income (AGI) reached certain thresholds, the amount you could deduct would become reduced and at a certain level, simply disappear altogether. But such factors can change with economic factors such as inflation and are also dependent on how you file.


Is Landlord Insurance Tax Deductible?

Yes, landlord insurance is tax deductible as the IRS sees this as a normal business expense. Therefore, while it’s always a good idea to file with a professional if you are renting out your property, be sure to consider the cost of your coverage as a potential tax break for homeowners.


Do First-Time Home Owners Get a Tax Break?


Yes, while many of the above can also apply, tax breaks for new home owners specifically, also exist. Most notable is the First-Time Homebuyer Tax Credit. This new home owner tax break was created by the First-Time Homebuyer Act and provides an advantage if you meet all of the following specifications:

  • You are a first-time home buyer and have not owned a home within the last 36 months.
  • You can’t have an income that exceeds local limitations.
  • The home you are purchasing must be your primary residence. This tax credit cannot be applied to your second home or any rental properties.
  • In order to qualify, you must be either 18 years old or married to someone who is.
  • The home you purchase must come from someone that is not a relative.

As you can see home owner tax breaks are available and are a great way to make sure your money goes farther in an economy where homeowners continue to fight inflation. Similarly, there are plenty of opportunities available to save money on home insurance as well.

We may not be experts on tax breaks for homeowners, but we have been helping homeowners save on homeowners insurance since 2005, and are proud to serve both Texas and Colorado. Contact us today or click to get a home insurance quote online to see why our clients save an average of 40% when switching.

Contact Us

Freedom Insurance Group
3861 Long Prairie Rd Ste 110
Flower Mound, TX 75028
Phone: (972) 798-3769


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