Do Homeowners Have to Itemize Deductions?

What Can I Write Off as a Homeowner? What House Expenses Are Tax Deductible 2021? What Itemized Deductions Are Still Allowed?

Itemized Deductions For Homeowners

The IRS defines a home as any house, condominium, cooperative, mobile home, boat, or similar property that has sleeping space, toilet facilities, and cooking facilities. Homeowners may qualify for the following deductions.

Real Estate Taxes

You can deduct real estate taxes assessed on all the real estate you own. You are not limited to the tax on just one or two homes.

  • Only the amount actually paid for tax is deductible. Do not confuse this amount with deposits made to your mortgage escrow account. 
  • Foreign property taxes are not deductible.
  • Charges for trash collection, sewer, etc., are sometimes added to real estate tax bills. These amounts are not deductible as real estate taxes.
  • Special assessments are sometimes added to real estate tax bills. Assessments are not necessarily deductible as real estate taxes. 

  • The total deduction for all state and local taxes (including income taxes) is limited to $10,000 ($5,000 MFS).

Mortgage Interest

If you borrow money to buy, build, or substantially improve your main or second home, the mortgage interest may be claimed as an itemized deduction.

Form 1098

Your lender will generally give you Form 1098, Mortgage Interest Statement, to tell you how much interest you have paid for the tax year. 

  • An explanation must be attached to your tax return if the amount shown on Form 1098 is different from the deducted amount or if more than one person paid deductible mortgage interest (other than a spouse filing jointly).
  • If you did not receive Form 1098, you must provide the name, identifying number, and address of the interest recipient.

Home Mortgage

A home mortgage is any loan secured by your main or second home, including first and second mortgages, home equity loans, and refinanced loans. The loan must be legally recorded, with the home as collateral for the debt. You must be legally liable to make the payments. For example, if you borrow money from your parents to make a down payment on your home, you cannot deduct the interest you pay them unless the loan is legally recorded with the home as collateral.

Limits

You may generally deduct the mortgage interest on your main home and a second home, up to the limits described below.

  • A loan secured by a third home is a personal loan and the interest is not deductible. Interest on a third home used exclusively for business might be deductible as a business expense.
  • Your mortgage interest deduction is limited, based on the type of debt you have. Note: Slightly different rules apply to mortgages taken out before October 14, 1987.

Refinanced Loans

Debt that is refinanced generally retains its character as acquisition or home equity debt, up to the old loan balance.

  • Debt used to substantially improve your home is acquisition debt, even if it is refinanced home equity debt. 
  • The $1,000,000 ($500,000 MFS) limitation applies to any indebtedness incurred after December 15, 2017, to refinance qualified residence indebtedness incurred before that date to the extent the amount of the indebtedness resulting from the refinancing does not exceed the amount of the refinanced indebtedness. Accordingly, the maximum dollar amount that may be treated as principal residence acquisition debt will not decrease due to a refinancing.

Points

Terms such as points, loan discount, loan origination fees, etc., refer to certain charges you might pay in order to obtain a mortgage. If you pay points to borrow money, the points are deductible as prepaid interest.

  • Points are deductible ratably over the life of your loan. Points you pay at the time of your home purchase are deductible in full.
  • Points you pay to the lender in exchange for a lower interest rate are generally shown on your closing statement. Each point charged to obtain a loan is 1% of the loan amount. For example, 2.5 points charged on a $100,000 loan equals $2,500 ($100,000 × 2.5%).
  • Fees your lender charges for specific loan services are not deductible. Examples include appraisal, notary, and document fees.

Medical Expense Deduction

You may need to make home improvements in order to provide medical care for yourself, your spouse, or your dependent. Examples: (1) Lifts or elevators, (2) therapy pool for help with a specific medical condition, (3) bathroom or countertop modifications to accommodate a person with a disability, (4) ramps, handrails, support or grab bars, (5) modifications to halls and doorways.

 An expense may generate a medical deduction to the extent the expense does not result in an increase to the home’s value. Not every expense results in such an increase.

Operation And Upkeep. Amounts you pay to operate and maintain a medically-related home improvement qualify as medical expenses, if the main reason is for medical care. This is true even if only part or none of the asset cost qualified for a deduction.

Other Itemized Deductions

Casualty And Theft Losses

If your home is damaged or destroyed in a disaster area declared by the President, you may have a casualty loss. Losses are calculated on Form 4684, Casualties and Thefts.

Mortgage Insurance Premiums

Premiums paid for acquisition indebtedness on a first or second home are treated as deductible mortgage interest. The deduction begins to phase out when AGI exceeds $100,000 ($50,000 MFS).