Homeowner Tax Deductions You Probably Didn’t Know About (But Should!)

As tax season approaches, many homeowners start gathering paperwork and preparing for one of the most financially important times of the year. While most know about the big deductions, like mortgage interest and property taxes, there are several lesser-known homeownership tax deductions that can make a surprising difference in how much you owe (or get back).

Whether you purchased your first home recently or have owned one for years, understanding these hidden tax benefits for homeowners could help you maximize your return and reduce your taxable income.

Let’s dive into a few key deductions and credits that many homeowners overlook.

1. Mortgage Points Deduction

When you took out your mortgage, did you pay discount points to lower your interest rate? Those points are often tax-deductible in the year you paid them, especially if the loan was used to buy or build your primary home.

Even if you refinanced, you can typically deduct the points over the life of the loan. Be sure to check your closing disclosure or settlement statement for any mention of “points”, they might be worth a closer look.

2. Energy Efficiency Home Improvements

If you upgraded your home to be more energy-efficient, you may qualify for federal energy tax credits. Under the Inflation Reduction Act, homeowners can claim up to 30% of the cost for eligible improvements such as:

• Energy-efficient windows and doors

• Solar panels

• Home battery storage

• Heat pumps or high-efficiency HVAC systems

Not only do these improvements lower your utility bills, but they can also deliver significant tax savings that make the investment even more worthwhile.

3. Home Office Deduction

Working from home more often these days? If you’re self-employed or run a small business from your home, you may qualify for the home office deduction.

You can deduct a portion of your home expenses, including utilities, repairs, and even internet based on the square footage used exclusively for work.

Tip: The IRS offers a simplified option that lets you claim $5 per square foot of office space, up to 300 square feet.

4. Private Mortgage Insurance (PMI) Deduction

If you put less than 20% down on your home, you’re likely paying private mortgage insurance (PMI). The good news? PMI can be tax-deductible, depending on your income level.

For many middle-income homeowners, this deduction can make a big difference, especially in the early years of homeownership when PMI payments are higher.

5. Local Property Tax Deductions

While Washington doesn’t have a state income tax, homeowners can still benefit from local property tax deductions as part of the State and Local Tax (SALT) deduction.

You can deduct the local property taxes paid on your primary residence (and a second home, if applicable), up to a combined limit of $10,000 per year under current IRS guidelines.

This deduction can provide meaningful relief for homeowners, especially those in areas with higher local tax rates or rising property assessments.

Tip: Keep track of your property tax statements and confirm payment dates, deductions are typically based on taxes paid within the calendar year, not just those billed.

6. Medical Home Improvements

If you’ve made modifications to your home for medical reasons such as adding ramps, widening doorways, or installing handrails, those expenses may be partially deductible as medical expenses.

The key here is that the improvements must be medically necessary and not add to the property’s value. Keep detailed receipts and documentation in case the IRS requests proof.

7. Capital Gains Exclusion When Selling

Planning to sell your home soon? You might be able to exclude up to $250,000 ($500,000 for married couples) of profit from your taxable income if you’ve lived in the home for at least two of the past five years.

This is one of the most powerful homeowner tax benefits, and it often surprises sellers who expect to owe taxes on their profit.

Bonus Tip: Don’t Forget About Closing Costs

Some closing costs, like mortgage interest paid at settlement or property taxes paid upfront may also be deductible. Review your HUD-1 Settlement Statement or Closing Disclosure carefully to spot potential deductions.

Owning a home comes with a long list of responsibilities, but it also comes with valuable tax advantages that can help you save money year after year.

Before you file, take time to:

• Review your mortgage documents and receipts

• Consult with a tax professional who understands real estate

• Explore new tax credits or deductions available for energy improvements

A little preparation now can lead to big savings later.

More Articles:

Top 5 Best Ways to Shake Off a Pulled Offer on Your Home

Should You Buy a House With a Friend? The Smart Guide to Co-Owning Property in 2025

The “Starbucks Effect” Is Fading: Why Home Values Near Closing Coffee Shops Could Take a Hit