Owning a home is a major undertaking. Not only are you responsible for your mortgage payments, but you also need to contend with property taxes, insurance, maintenance, and repairs. The good news, however, is that your home might serve as a source of savings on your tax return this year, especially if you end up itemizing.
As a reminder, you have two options for claiming deductions on your taxes. You can take the standard deduction (which, for the 2018 tax year, is $12,000 for single tax filers and $24,000 for couples filing jointly), or you can itemize your deductions if doing so is more cost-effective than opting for the standard. Since the standard deduction nearly doubled in 2018 from its previous levels, many filers will likely find that itemizing doesn't pay, and if you're one of them, you won't be able to write off many of the following costs associated with your home. But if you are itemizing, these home-related deductions might prove quite lucrative.
1. Mortgage interest
You may have heard that the mortgage interest deduction changed in 2018, and that's true. Prior to 2018, you could deduct interest on a home loan of up to $1 million, but for 2018, that threshold was lowered to $750,000. However, if you signed your mortgage before Dec. 15, 2017, you're grandfathered into the old system and can therefore claim interest against the higher limit.
2. Property taxes
Prior to 2018, there was no limit on the amount of state and local taxes you could deduct, and property taxes are part of that bucket. Now, however, that total deduction is capped at $10,000, which means that if you live in a high-property-tax area, you may not get to write off your entire property tax bill -- but $10,000 is still better than nothing.
3. Home equity loan interest
There's a rumor going around that home equity loan interest is no longer tax-deductible, and that's true in certain circumstances. You can't deduct interest on a home equity loan used for non-home-related purposes. For example, if you take out a home equity loan to pay for a vacation, its interest is off limits. But if you take out a home equity loan to renovate a bathroom, finish a basement, or update your windows, you can deduct the interest you pay on that loan.
4. The home office deduction
If you're self-employed and work out of your home, you may be eligible to take a home office deduction. To qualify, your home must constitute your primary place of work, and you must have a space dedicated for work purposes only. But if that's the case, you can claim a home office deduction on your Schedule C (Profit or Loss from Business), which means you can reap some savings from it even if you don't itemize on your tax return.
You have two options for figuring your home office deduction. First, you can claim $5 per square foot of office space up to a maximum of 300 square feet, or $1,500. Or, you can deduct expenses related to your office instead. Those might include direct expenses like office supplies, or indirect expenses like utility bills, interest service, and even your property taxes -- expenses that come with owning your home and being able to work there. That said, you can't just take your total home expenses and write them off in their entirety. Rather, you'll need to determine how much space your office takes up relative to your home, and deduct proportionally. For example, if your office takes up 10% of your home and you spend $20,000 on home expenses, you can deduct $2,000.
While owning a home is an expensive prospect, it can serve as a major source of tax savings. Be sure to maximize the tax breaks you're entitled to as a homeowner, provided doing so makes sense. If you're a joint filer who's eligible for a $10,000 mortgage interest deduction and $10,000 property tax deduction, you're better off forgoing them and taking the standard deduction if you don't have other deductions to claim. But if you're looking at $15,000 in mortgage interest and $10,000 in property taxes, you'll automatically come out ahead by itemizing and writing off those home-related expenses.