5 Home Ownership Expenses That Are Tax Deductible—and 5 That Aren’t

Tony Carrick
·5 min read
A grandfather, father, and son moving into a new home.
A grandfather, father, and son moving into a new home.

If you bought your first home in 2023 or refinanced your home, then you might be in line to take advantage of some home buyer tax deductions that will help you toward a healthy tax return. Any home purchase or refinance comes with a long list of fees, like discount points, origination fees, and property taxes. The trick is figuring out which ones are deductible and which ones aren’t.

Tax-Deductible Expenses

There are many tax-deductible expenses for first-time home buyers and those refinancing their homes. Just keep in mind that you’ll need to itemize deductions on Schedule A of your return to take advantage of most of these deductions. That means your itemized expenses for 2023 will need to total more than the standard deduction, $13,850 if you’re a single filer or $27,700 if you’re filing jointly, to reap their benefits.

A couple sitting at a table with a tax professional learning about homeowner tax deductions.
A couple sitting at a table with a tax professional learning about homeowner tax deductions.

Photo: istockphoto.com

1. Home Equity Loan

If you take out a home equity loan, you can deduct the interest on it depending on how you use it. According to the IRS, the interest is deductible if you use the money to make home improvements on the property that’s attached to the loan. The key here is that the improvement must be “substantial,” so minor repairs and upgrades won’t qualify.

2. Cash-Out Mortgage Interest Deduction

Just as with any home loan, you can deduct the mortgage interest you pay to the lender if you choose to itemize your taxes on the first $750,000 of mortgage debt. The rules are a little different if you go with a cash-out refinance or home equity loan. In those cases, you can only deduct interest that occurs on the cash part of the loan if you put it back into your home.

“If the refinance is a cash-out and the funds are used for capital home improvements, the full amount of interest may be deductible,” says Johan Garcia, certified public accountant and founder of After Tax Cash. These improvements don’t have to be large and can include small upgrades, such as installing a garage door opener or a new home security system.

3. Discount Points

While there aren’t many tax breaks associated with refinancing your home loan, the cost of mortgage discount points is one you might be able to take advantage of. If you paid your mortgage lender for discount points to reduce your mortgage interest rate during refinancing, you can deduct those, just not all at once. “Points paid during mortgage refinancing can also be deducted via annual amortization typically spread out over the life of the new loan,” Garcia says. However, if the refinance money was used to pay for home improvements, you can deduct them fully in the year you paid them.

4. Property Taxes

Depending on the value of your home and your local tax rates, property taxes can add up to a pretty penny and a significant chunk of your monthly payment. Luckily, you can recoup some of that money by deducting them from your taxes. The limit for total tax deductions (including property taxes) is $10,000 per year. When taking this deduction, make sure you aren’t including other fees that might be on your tax bill that aren’t deductible, such as charges for water services, trash collection, or assessments for infrastructure upgrades, like sidewalk repairs.

5. Home Office

While you may not deduct all of your utilities, HOA fees, and hazard insurance on your taxes, you might be able to deduct some if you use part of your home for a business. If your business meets IRS requirements for a home office, you can deduct a percentage of the above based on the square footage of the office in relation to the rest of the house.

Expenses That Are Not Tax Deductible

You’ll pay a litany of fees and expenses when you purchase your first home or refinance an existing loan. While it would be nice if you could claim all of these expenses on your taxes, the fact is that most of them simply aren’t deductible.

Home with stone features and front porch.
Home with stone features and front porch.

Photo: istockphoto.com

1. Homeowner’s Insurance Premiums

Property insurance protects you from a loss in the event your home is damaged by fire or a falling tree, theft, and other hazards. However, it won’t shield you from Uncle Sam. Homeowners insurance premiums are not tax deductible, Garcia says.

2. Refinance Fees

There are many fees associated with refinancing a home that you typically pay either at closing or roll into your new loan. Most of the time, they aren’t deductible. “Costs for getting or refinancing a mortgage, such as loan assumption, credit report, and appraisal fees, are generally not deductible,” Garcia says. “If your real estate property is an investment property, then these are all deductible or allowed to be capitalized and depreciated,” he says.

3. Settlement Fees

While you can take advantage of some nice tax breaks if you’re a first-time homeowner, the federal government won’t give you a break on all the fees that come with purchasing a home. Settlement fees, appraisal fees, inspection costs, title insurance, and legal and recording fees are not tax deductible.

4. Private Mortgage Insurance (PMI)

This may come as an unwelcome surprise to those who have to pay mortgage insurance on their loan. Congress reinstated the deduction for PMI for tax years 2018 through 2021, but chose not to continue it to 2022 and beyond, which means you can’t deduct any mortgage insurance premium you paid in 2023.

5. Origination Points

Not to be confused with discount points, origination points are fees the lender charges you to process your loan. Each point is 1 percent of the loan. If you have to pay 1.5 origination points on a $150,000 loan, you’ll pay $2,250 in origination fees. Unlike discount points, you can’t deduct the cost of origination points from your taxes.