Top Tax Benefits Of Home Ownership

What Can You Deduct for the 2016 Tax Year?

Top Tax Benefits Of Home Ownership
January 23, 2017

Your home is your castle, and it is also a source of tax deductions. Yet, every year, Americans let these potential tax deductions pass by, not realizing how to take advantage of them.

IRS Publication 530, titled "Tax Information for Homeowners", can fill you in on the deductions that are available to you for the 2016 tax year. Several of the most important tax benefits are listed below.

  • Mortgage Interest – This should be the largest home-related tax deduction that is available to you unless you purchased your home in the 2016 tax year. You can deduct interest payments on either primary or secondary homes, up to the limit of $1 million in collective mortgage debt if married and filing jointly. The limits are $500,000 for single filers or married couples filing separately.

The mortgage interest deduction applies to anything that meets the definition of a basic living space that you own. Condominiums, mobile homes, and even boats are included assuming that they meet the living space definition with at least one sleeping area, a kitchen, and a toilet. Details may be found in IRS Publication 936, "Home Mortgage Interest Deduction."

  • Points – Any points that you paid at closing to lower the interest rate on your mortgage are deductible. Generally, the deductions must be amortized over the life of the mortgage, but there are circumstances where you may be able to deduct the entire amount of your points paid in the year of purchase. See Publication 530 for details.


  • Property Taxes – You can deduct real estate taxes that are assessed uniformly (no taxes that reflect a special privilege or a service granted to you). Property taxes associated with the purchase of a home may also be deducted.
  • Mortgage Interest Credit – Typically, mortgage interest is taken as a deduction. However, if you have a qualifying low income, you can claim mortgage interest as a credit instead. This subtracts the total directly from your tax bill instead of from your taxable income used to determine your tax bill. To claim this credit, you must have received a qualified Mortgage Credit Certificate from a suitable state or local agency. File Form 8396 along with your tax form to claim your credit.
  • Home Equity Loans – When you borrow against your home equity, either with a loan or a line of credit (HELOC), the interest may be deductible depending on how the loan is used, the amount of the loan, and the value of your home.
  • Forgiven Mortgage Debt – When a bank decides to accept a short sale for less than the value of a home and forgives the rest of the debt, that debt is usually considered as taxable income. In 2007, Congress created the Mortgage Forgiveness Debt Relief Act to reclassify the forgiven debt as non-taxable income, saving already distressed homeowners from a huge tax burden. After being renewed several times, this tax relief measure expired at the end of 2016 and has not been renewed by Congress. However, the good news is that if you're in the process of discharging mortgage debt and signed a written agreement with the lender in 2016, you're still eligible for this tax exemption when you file your 2016 return. What’s no longer covered is any mortgage debt cancelled in 2017 or beyond.

Check the IRS publications and see if any of these valuable deductions apply to you. Take advantage of every tax deduction that you can. Otherwise, the government simply keeps more of your money.

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Photo ©iStockphoto.com/Pgiam

  Conversation   |   15 Comments

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Irene | 02.23.16 @ 14:55
Great info. I already did my taxes this year but some of this will be good news to my sister
Erin | 02.23.16 @ 14:55
Thank you for this information. We always wonder about whether we should be working more aggressively to pay off our mortgage, but the tax benefits hold us back somewhat. This may help us clear up some of that confusion.
Carla Truett | 02.23.16 @ 14:56
Our Mortgage interest has been a great deduction for a while. It is nice that something good comes out of our high house payments.
Christina | 02.23.16 @ 14:57
This is a great resource to have as we look to purchase a home! I didn't realize there were so many different deductions.
Beverly | 02.23.16 @ 14:57
Really good info, especially for those deciding if home ownership is for them. We have been getting our Mortgage Insurance deduction for years so you need to take that into consideration if you ever decide to pay off your mortgage.
Tina | 02.23.16 @ 14:57
Timely information, thanks for the helpful list! We are just about to file our taxes. I'd still love to pay my home off, though :-)
Sarah | 02.23.16 @ 14:57
Interesting. My taxes are done for this year but maybe next year. It's good info
Kbrawdy | 02.23.16 @ 15:00
Yes, we did our taxes this year already, but I will be sure to tell everyone who hasn't done theirs about this!
Steffanie | 02.23.16 @ 15:01
This is something we always question each year. Never sure what to do, so thanks for the article and tips.
Zanna | 02.23.16 @ 15:05
I hadn't heard about the forgiven mortgage debt. Too bad it has to be re-approved year to year. That would cause a lot of worry!
Zanna | 01.23.17 @ 21:11
I will be looking into this carefully, especially with the Home equity, any deductions or credits are always good to know about!
Nancy | 01.23.17 @ 21:27
These are important credits and deductions which I have used for years. It's nice to see you're reminding people.
Jane | 01.24.17 @ 18:22
I hope the Mortgage Forgiveness Debt Relief Act will be retroactively renewed. What a lifesaver that must be for those who did short sales!
Crystal | 01.24.17 @ 21:15
I hope we can also deduct energy efficient related repairs and updates. But I fear we'll see the end of those with a Trump administration.
Saving in WI | 01.25.17 @ 19:47
Erin, you should not be keeping a mortgage in a way to reduce taxes. Mathematically it does not make sense. The money you pay in interest is a lot more than what you save in taxes.
$commenter.renderDisplayableName() | 06.27.17 @ 20:46
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