10 Homeowner Tax Breaks To Take Advantage Of

If death and taxes are the two things you can always count on in life, there probably should be a third: the bucketful of tax breaks Uncle Sam offers every year to encourage more Americans to buy a home.

For one, Americans are able write off virtually all mortgage interest, not only for your primary home, but for a second home as well under some conditions — up to $1.1 million of debt when you include home-equity loans that are used for certain personal expenditures, such as funding college education. In most cases, homeowners are also able to write off their property taxes.

Americans who owned homes saved about $1,900 a year, on average, on their taxes with the deduction in 2012.

Some of the most significant tax breaks that only homeowners can claim are fairly well-known, such as the MID, but here are some others:

1. Points on home mortgage and refinancing: If you bought a home in 2015 with a mortgage, then in addition to the mortgage interest (which may not be a lot if you bought late in the calendar year), you can probably write off the points (both origination and discount points) on your tax return, says Jackie Perlman, principal tax research analyst at H&R Block HRB, -0.44% . One point is equal to 1% of the principal loan amount. That’s because the IRS considers points to be prepaid interest.

The challenge is whether you’re eligible to deduct the points all at once, or whether you have to spread the costs out over the life of the loan. Generally, if you bought your first home using a loan or got a loan to build that first home, you can take the deduction all at once, the IRS says. For a second home, and often for a refinance on a first home, the IRS says you most likely have to spread it out. “You have to meet all the criteria in order to deduct them up front, otherwise you have to amortize them over the life of the loan,” she said. A good place to start, she says, is the IRS Tax Information for Homeowners guide.

2. Interest on home-improvement loan: The IRS considers the interest on a home-improvement loan fully deductible, up to $100,000 in debt. In addition, interest paid on a home equity line of credit (HELOC) is also tax-deductible. However, as Greg McBride, chief financial analyst with Bankrate.com, notes, any portion of a home loan that is over 100% loan-to-value (meaning the loan is worth more than the value of the property) isn’t deductible. If you own a second home, the mortgage interest paid may be deductible as long as you spend at least 14 days or 10% of the fair rental days (whichever is longer) in the home, says Ray Rodriguez, Regional Mortgage Sales Manager for Cherry Hills, New Jersey-based TD Bank TD, +2.10%

3. Property tax: Property taxes are almost always tax-deductible, and more than half (54%) of American homeowners take this deduction, according to the Congressional Research Service, with American homeowners claiming $173 billion in 2011. As a result, about $30 billion will be returned to U.S. taxpayers in 2015, CRS says. Military service members (as well as clergy members) however can also write off real estate taxes and home mortgage interest even if they receive a housing allowance. Still, some things on your settlement document that might look like taxes really aren’t, says McBride. Transfer taxes, for example, and you can’t write off your attorney and appraisal fees, title insurance and credit report costs either, McBride notes.